1
2 UNITED STATES BANKRUPTCY COURT
3 DISTRICT OF DELAWARE
4 Case No. 08-12229-MFW; Adv. Proc. No. 10-50911-MFW
5 - -x
6 In the Matter of:
7 WASHINGTON MUTUAL, INC., et al.,
8 Debtors.
9 - - - - - -x
10 BROADBILL INVESTMENT CORP.,
11 Plaintiff,
12 -against-
13 WASHINGTON MUTUAL, INC.,
14 Defendant.
15 - - -x
16 U.S. Bankruptcy Court
17 824 North Market Street
18 Wilmington, Delaware
19
20 July 20, 2010
21 9:31 AM
22 B E FOR E:
23 HON. MARY F. WALRATH
24 U.S. BANKRUPTCY JUDGE
25 ECR OPERATOR: BRANDON MCCARTHY
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 1 -
516-608-2400
- 2 -
1
2 HEARING re Bank Bondholders' Motion to Temporarily Allow Claims
3 for Voting Purposes [Docket No. 4436; filed 5/28/10]
4
5 HEARING re Motion for Order Authorizing the Official Committee
6 of Equity Security Holders to File Supplemental Filing
7 Regarding the Examiner Motion and the Scope of Production under
8 Seal [Docket No. 4893; filed 7/7/10]
9
10 HEARING re Motion of Silas B. Wrigley and Barbara Wrigley for
11 Relief from the Automatic Stay Pursuant to 11 U.S.C. Section
12 362(d) to Proceed with Their Action Against Debtor Washington
13 Mutual, Inc. Pending in the Superior Court for Butte County,
14 California [Docket No. 3216; filed 4/13/2010]
15
16 HEARING re Motion of Debtors for an Order, Pursuant to Sections
17 105, 502, 1125, 1126 and 1128 of the Bankruptcy Code and
18 Bankruptcy Rules 2002, 2003, 3017, 3018 and 3020, (I) Approving
19 the Proposed Disclosure Statement and the Form and Manner of
20 the Notice of the Disclosure Statement Hearing, (II)
21 Establishing Solicitation and Voting Procedures, (III)
22 Scheduling A Confirmation Hearing, and (IV) Establishing Notice
23 and Objection Procedures for Confirmation of the Debtors' Joint
24 Plan [Docket No. 3568; filed 4/23/10]
25
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 3 -
1
2 HEARING re Motion of the Washington Mutual, Inc. Noteholders
3 Group for an Order Under 11 U.S.C. Section 1112(b) Converting
4 the Debtors' Cases to Chapter 7 or, in the Alternative, for an
5 Order Under 11 U.S.C. Section 1104(a) Appointing a Trustee to
6 Administer the Debtors' Estates [Docket No. 3651; filed 5/4/10]
7
8 HEARING re Motion of the Consortium of Trust Preferred Security
9 Holders to Compel Debtors to Produce Documents [Docket No.
10 3757; filed 5/17/10]
11
12 HEARING re Motion of the Official Committee of Equity Security
13 Holders for an Order Pursuant to Bankruptcy Rule 2004 and Local
14 Bankruptcy Rule 2004-1 Directing the Examination of JPMorgan
15 Chase [Docket No. 4301; filed 5/25/10]
16
17 HEARING re Motion of the Official Committee of Equity Security
18 Holders for an Order Directing Expedited Discovery Pursuant to
19 Fed. R. Civ. P. 34(B), Fed. R. Bankr. P. 9006, 9014 and 7034,
20 and Del. Bankr. LR 9006-1(E) [Docket No. 4343; filed 5/26/10]
21
22 HEARING re Motion of the Official Committee of Equity Security
23 Holders for an Order Pursuant to Bankruptcy Rule 2004 and Local
24 Bankruptcy Rule 2004-1 Directing the Examination of the FDIC
25 and Certain Third Parties [Docket No. 4414; filed 5/28/10]
212-267-6868 VERITEXT REPORTING COMPANY
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- 4 -
1
2 HEARING re Motion of the Official Committee of Equity Security
3 Holders in Support of Order Directing Appointment of an
4 Examiner Under 11 U.S.C. Section 1104(c) [Docket No. 4644;
5 filed 6/8/10]
6
7 HEARING re Motion to Compel JPMC to Produce Documents [Docket
8 No. 4729; filed 6/16/10]
9
10 HEARING re Supplemental Response of JPMorgan Chase Bank, N.A.
11 to the Equity Committee's Motion for a New Rule 2004
12 Investigation; (ii) Opposition to Motion of Consortium of Trust
13 Preferred Security Holders to Compel JPMorgan Chase to Produce
14 Documents; and (iii) Motion of JPMorgan Chase Bank, N.A. for
15 Entry of a Protective Order with Respect to Plan Objectors'
16 Requests for Discovery [Docket No. 4739; filed 6/16/10]
17
18 HEARING re Motion of the Consortium of Trust Preferred Security
19 Holders to Compel the Office of Thrift Supervision to Produce
20 Documents [Docket No. 4868; filed 7/2/10]
21
22 HEARING re The Texas Group's Motion to Compel Production of
23 Documents from Debtors and to Exercise Its Right to Participate
24 in General Discovery Available to all Parties [Docket No. 4869;
25 filed 7/2/10]
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 5 -
1
2 RE: ADV. PROC. NO. 10-50911:
3 HEARING re Debtors' Motion for an Order, Pursuant to Bankruptcy
4 Rule 7042 and Section 105(A) of the Bankruptcy Code, (I)
5 Consolidating the Debtors' Forty-Third and Forty-Fourth Omnibus
6 Objections with Adversary Proceeding Commenced by Broadbill
7 Investment Corp., and (II) Staying the Adversary Proceeding
8 [Docket No. 4804i filed 6/24/10i Adversary Docket No. 23i filed
9 6/24/10]
10
11 HEARING re Motion for Order Authorizing the Official Committee
12 of Equity Security Holders to File Supplemental Statement in
13 Support of Motion for Examiner and on Timing for Resolution of
14 Shareholder Meeting under Seal [Docket No. 5091i filed 7/19/10]
15
16
17
18
19
20
21
22
23
24 Transcribed By: Clara Rubin
25
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 6 -
1
2 A P PEA RAN C E S:
3 WElL GOTSHAL & MANGES LLP
4 Attorneys for the Debtors and Debtors-in-Possession
5 767 Fifth Avenue
6 New York, NY 10153
7
8 BY: BRIAN S. ROSEN, ESQ.
9 JOHN P. MASTANDO III, ESQ.
10 KELLY DIBLASI, ESQ.
11 JONATHAN SHIFFMAN, ESQ. (TELEPHONICALLY)
12 JULIO C. GURDIAN, ESQ. (TELEPHONICALLY)
13 TAL S. SAPElKA, ESQ. (TELEPHONICALLY)
14
15
16 WElL GOTSHAL & MANGES LLP
17 Attorneys for the Debtors and Debtors-in-Possession
18 100 Federal Street
19 Floor 34
20 Boston, MA 02110
21
22 BY: VIRGINIA H. JOHNSON, ESQ. (TELEPHONICALLY)
23
24
25
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
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1
2 RICHARDS, LAYTON & FINGER, P.A.
3 Attorneys for the Debtors and Debtors-in-Possession
4 One Rodney Square
5 920 North King Street
6 Wilmington, DE 19801
7
8 BY: MARK D. COLLINS, ESQ.
9 CHUN I. JANG, ESQ.
10
11 MILBANK, TWEED, HADLEY & MCCLOY LLP
12 Attorneys for the Debtors and Debtors-in-Possession
13 One Chase Manhattan Plaza
14 New York, NY 10005
15
16 BY: ANDREW J. YOUNG, ESQ. (TELEPHONICALLY)
17
18 QUINN EMANUEL URQUHART OLIVER & HEDGES, LLP
19 Attorneys for the Debtors and Debtors-in-Possession
20
21
22
23
24
25
51 Madison Avenue, 22nd Floor
New York, NY 10010
BY: SUSHEEL KIRPALANI, ESQ.
NICHOLAS J. CALAMARI, ESQ.
DAVID L. ELSBERG, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 8 -
1
2 QUINN EMANUEL URQUHART OLIVER & HEDGES, LLP
3 Attorneys for the Debtors and Debtors-in-Possession
4 865 S. Figueroa Street, 10th Floor
5 Los Angeles, CA 90017
6
7 BY: ERICA P. TAGGART, ESQ. (TELEPHONICALLY)
8
9 ANDREWS KURTH LLP
10 Attorneys for Broadbill Investment Corp.
11 450 Lexington Avenue
12 New York, NY 10017
13
14 BY: PAUL N. SILVERSTEIN, ESQ.
15 JEREMY RECKMEYER, ESQ.
16
17 AKIN GUMP STRAUSS HAUER & FELD LLP
18 Attorneys for the Official Committee of Unsecured
19 Creditors
20 One Bryant Park
21 New York, NY 10036
22
23
24
25
BY: ROBERT A. JOHNSON, ESQ.
FRED S. HODARA, ESQ.
ROBERT J. BOLLER, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 9 -
1
2 AKIN GUMP STRAUSS HAUER & FELD LLP
3 Attorneys for the Official Committee of Unsecured
4 Creditors
5 2029 Century Park East
6 Suite 2400
7 Los Angeles, CA 90067
8
9 BY: BRIAN M. ROTHSCHILD, ESQ. (TELEPHONICALLY)
10 DAVID P. SIMONDS, ESQ. (TELEPHONICALLY)
11
12 ARENT FOX LLP
13 Attorneys for Wilmington Trust Company
14 1675 Broadway
15 New York, NY 10019
16
17 BY: LEAH M. EISENBERG, ESQ.
18
19 ARENT FOX LLP
20 Attorneys for Wilmington Trust Company
21 1050 Connecticut Avenue, NW
22 Washington, DC 20036
23
24
25
BY: JEFFREY N. ROTHLEDER, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 10 -
1
2 ASHBY & GEDDES, P.A.
3 Attorneys for the Official Committee of Equity Security
4 Holders
5 500 Delaware Avenue
6 Wilmington, DE 19899
7
8 BY: GREGORY ALAN TAYLOR, ESQ.
9 JUSTIN A. NELSON, ESQ.
10
11 BLANK ROME LLP
12 Attorneys for Centerbridge Partners, L.P.; Appaloosa
13 Management LP; Aurelius Capital Management LP; Owl Creek
14 Asset Management LP
15 1201 Market Street, Suite 800
16 Wilmington, DE 19801
17
18 BY: VICTORIA (TORI) A. GUILFOYLE, ESQ.
19
20 BOUCHARD MARGULES & FRIEDLANDER, P.A.
21 Attorneys for Goldman Sachs
22
23
24
25
222 Delaware Avenue, Suite 1400
Wilmington, DE 19801
BY: ANDRE G. BOUCHARD, ESQ.
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 11 -
1
2 BROWN RUDNICK LLP
3 Attorneys for the Ad Hoc Group of Trust Preferred
4 Security Holders
5 One Financial Center
6 Boston, MA 02111
7
8 BY: STEVEN B. LEVINE, ESQ.
9 JAMES W. STOLL, ESQ.
10 DANIEL J. BROWN, ESQ. (TELEPHONICALLY)
11
12
13 BROWN RUDNICK LLP
14 Attorneys for the Ad Hoc Group of Trust Preferred
15 Security Holders
16 Seven Times Square
17 New York, NY 10036
18
19
20
21
22
23
24
25
BY: SIGMUND S. WISSNER-GROSS, ESQ. (TELEPHONICALLY)
LAURA F. WEISS, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 12 -
1
2 CAMPBELL & LEVINE, LLC
3 Attorneys for the Ad Hoc Group of Trust Preferred
4 Security Holders
5 800 North King Street
6 Suite 300
7 Wilmington, DE 19801
8
9 BY: MARLA ROSOFF ESKIN, ESQ.
10
11 DLA PIPER
12 Attorneys for FDIC, Receiver
13 1251 Avenue of the Americas
14 New York, NY 10020
15
16 BY: THOMAS R. CALIFANO, ESQ.
17 JOHN J. CLARKE, JR., ESQ.
18
19 ELLIOTT GREENLEAF
20 Special Counsel to the Debtors and Debtors-in-Possession
21 1105 Market Street
22 Suite 1700
23 Wilmington, DE 19801
24
25 BY: NEIL R. LAPINSKI, ESQ.
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 13 -
1
2 FRIED FRANK HARRIS SHRIVER & JACOBSON LLP
3 Attorneys for Centerbridge Partners, L.P.; Appaloosa
4 Management LP; Aurelius Capital Management LP; Owl Creek
5 Asset Management LP
6 One New York Plaza
7 New York, NY 10004
8
9 BY: BRAD ERIC SCHELER, ESQ.
10
11 FOX ROTHSCHILD LLP
12 Attorneys for WMI Noteholders Group
13 Citizens Bank Center
14 919 North Market Street, Suite 1300
15 Wilmington, DE 19899
16
17 BY: JEFFREY M. SCHLERF, ESQ.
18
19 FOX ROTHSCHILD LLP
20 Attorneys for Wells Fargo Bank, N.A.
21 Citizens Bank Center
22 919 North Market Street, Suite 1300
23 Wilmington, DE 19899
24
25 BY: SETH A. NIEDERMAN, ESQ.
212-267-6868 VERlTEXT REPORTING COMPANY
www.veritext.com 516-608-2400
1
2 KING & SPALDING LLP
3 Attorneys for Nantahala
4 1185 Avenue of the Americas
5 New York, NY 10036
6
7 BY: ARTHUR J. STEINBERG, ESQ.
8
9
10 LANDIS RATH & COBB LLP
11 Attorneys for JPMorgan Chase
12 919 Market Street
13 Suite 1800
14 Wilmington, DE 19899
15
16 BY: ADAM LANDIS, ESQ.
17
18
19 LOEB & LOEB LLP
20 Attorneys for Wells Fargo Bank, N.A.
21 345 Park Avenue
22 New York, NY 10154
23
24
25
BY: WALTER H. CURCHAK, ESQ.
VADIM J. RUBENSTEIN, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 14 -
516-608-2400
- 15 -
1
2 LOIZIDES, PA
3 Attorney for Silas B. Wrigley and Barbara Wrigley
4 1225 King Street
5 Suite 800
6 Wilmington, DE 19801
7
8 BY: CHRISTOPHER D. LOIZIDES
9
10 LOWENSTEIN SANDLER PC
11 Attorneys for Various Lead Plaintiffs
12 65 Livingston Avenue
13 Roseland, NJ 07068
14
15 BY: MICHAEL S. ETKIN, ESQ.
16
17 PEPPER HAMILTON LLP
18 Attorneys for the Official Committee of Unsecured
19 Creditors
20 Hercules Plaza
21 1313 Market Street
22 Suite 5100
23 Wilmington, DE 19899
24
25 BY: DAVID B. STRATTON, ESQ.
212-267-6868 VERlTEXT REPORTING COMPANY
www.veritext.com 516-608-2400
1
2 PHILLIPS GOLDMAN & SPENCE, P.A.
3 Attorneys for BKK Joint Defense Group
4 1200 North Broom Street
5 Wilmington, DE 19806
6
7 BY: JOSEPH J. FARNAN, III, ESQ.
8
9 POLSINELLI SHUGHART PC
10 Attorneys for Wilmington Trust Co.
11 222 Delaware Avenue, Suite 1101
12 Wilmington, DE 19801
13
14 BY: SHANTI M. KATONA, ESQ.
15
16
17 POTTER ANDERSON & CORROON LLP
18 Attorneys for the WMB Bondholders Group
19 Hercules Plaza
20 1313 North Market Street
21 6th Floor
22 Wilmington, DE 19801
23
24
25
BY: THERESA V. BROWN-EDWARDS, ESQ.
R. STEPHEN MCNEILL, ESQ.
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 16 -
516-608-2400
1
2 SULLIVAN & CROMWELL LLP
3 Attorneys for JPMorgan Chase
4 125 Broad Street
5 New York, NY 10004
6
7 BY: STACEY R. FRIEDMAN, ESQ.
8 BRIAN D. GLUECKSTEIN, ESQ.
9 BRUCE E. CLARK, ESQ. (TELEPHONICALLY)
10 JOSHUA J. FRITSCH, ESQ. (TELEPHONICALLY)
11 JUSTIN D. O'CONNELL, ESQ. (TELEPHONICALLY)
12 DAVID M. POSSICK, ESQ. (TELEPHONICALLY)
13
14
15 SULLIVAN & CROMWELL LLP
16 Attorneys for JPMorgan Chase
17 1888 Century Park East
18
19
20
21
22
23
24
25
Los Angeles, CA 90067
BY: ROBERT A. SACKS, ESQ.
HYDEE R. FELDSTEIN, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 17 -
516-608-2400
1
2 WHITE & CASE LLP
3 Attorneys for the WMI Noteholders Group
4 1155 Avenue of the Americas
5 New York, NY 10036
6
7 BY: GERARD UZZI, ESQ.
8 THOMAS E. LAURIA, ESQ.
9
10 YOUNG CONAWAY STARGATT & TAYLOR, LLP
11 Attorneys for FDIC, Receiver
12 The Brandywine Building
13 1000 West Street
14 17th Floor
15 Wilmington, DE 19801
16
17 BY: M. BLAKE CLEARY, ESQ.
18
19 U.S. DEPARTMENT OF JUSTICE
20 Office of the United States Trustee
21 844 King Street, Suite 2207
22 Wilmington, DE 19801
23
24
25
BY: JOSEPH J. MCMAHON, JR., ESQ.
JANE LEAMY, ESQ.
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 18 -
516-608-2400
1
2 BINGHAM MCCUTCHEN LLP
3 Attorneys for BKK Joint Defense Group
4 2020 K Street NW
5 Washington, DC 20006
6
7 BY: MILISSA MURRAY, ESQ. (TELEPHONICALLY)
8
9
10 BOIES, SCHILLER & FLEXNER LLP
11 Attorneys for the Bank Bondholders
12 5301 Wisconsin Avenue NW
13 Washington, DC 20015
14
15 BY: NEAL HANNAN, ESQ. (TELEPHONICALLY)
16
17
18 BRACEWELL & GIULIANI LLP
19 Attorneys for the WMB Noteholders
20 225 Asylum Street
21 Suite 2600
22 Hartford, CT 06103
23
24
25
BY: RENEE M. DAILEY, ESQ. (TELEPHONICALLY)
MARK E. DENDINGER, ESQ. (TELEPHONICALLY)
212-267-6868 VERlTEXT REPORTING COMPANY
www.veritext.com
- 19 -
516-608-2400
- 20 -
1
2 CLEARY GOTTLIEB STEEN & HAMILTON LLP
3 Attorneys for Creditor, Goldman Sachs
4 2000 Pennsylvania Avenue, NW
5 Washington, DC 20006
6
7 BY: BENJAMIN MEEKS, ESQ. (TELEPHONICALLY)
8
9
10 DRINKER BIDDLE & REATH LLP
11 Attorneys for the WMB Noteholders
12 191 N. Wacker Drive
13 Suite 3700
14 Chicago, IL 60606
15
16 BY: JEFFREY M. SCHWARTZ, ESQ. (TELEPHONICALLY)
17
18
19 GREER, HERZ & ADAMS, L.L.P.
20 Attorneys for Interested Party, American National
21 Insurance Co.
22 One Moody Plaza
23 18th Floor
24
25
Galveston, TX 77550
BY: JAMES M. ROQUEMORE, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 21 -
1
2 KASOWITZ BENSON TORRES & FRIEDMAN LLP
3 Attorneys for the Noteholders Group
4 1633 Broadway
5 New York, NY 10019
6
7 BY: TREVOR J. WELCH, ESQ. (TELEPHONICALLY)
8
9
10 MORRISON & FOERSTER LLP
11 Attorneys for Interested Party, S&P
12 1290 Avenue of the Americas
13 New York, NY 10104
14
15 BY: LORENZO MARINUZZI, ESQ. (TELEPHONICALLY)
16
17
18 PATTERSON BELKNAP WEBB & TYLER LLP
19 Attorneys for Creditor, Law Debenture Trust Company of NY
20 1133 Avenue of the Americas
21 New York, NY 10036
22
23
24
25
BY: BRIAN P. GUINEY, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.velitext.com 516-608-2400
- 22 -
1
2 PILLSBURY WINTHROP SHAW & PITTMAN LLP
3 Attorneys for Creditor, Bank of New York Mellon
4 1540 Broadway
5 New York, NY 10036
6
7 BY: LEO T. CROWLEY, ESQ. (TELEPHONICALLY)
8 MARGOT P. ERLICH, ESQ. (TELEPHONICALLY)
9
10
11 REED SMITH LLP
12 Attorneys for Interested Party, Dime Trust Beneficiaries
13 599 Lexington Avenue
14 22nd Floor
15 New York, NY 10022
16
17 BY: J. ANDREW RAHL, JR., ESQ. (TELEPHONICALLY)
18
19
20 ROPES & GRAY LLP
21
22
23
24
25
Attorneys for Creditor, Paulson & Co.
One International Place
Boston, MA 02110
BY: D. ROSS MARTIN, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 23 -
1
2 SCHULTE ROTH & ZABEL LLP
3 Interested Party
4 919 Third Avenue
5 New York, NY 10022
6
7 BY: KAREN S. PARK, ESQ. (TELEPHONICALLY)
8
9
10 SEWARD & KISSEL LLP
11 Attorneys for Wilmington Trust Company as TRUPs Trustee
12 One Battery Park Plaza
13 New York, NY 10004
14
15 BY: ARLENE R. ALVES, ESQ. (TELEPHONICALLY)
16
17
18 STUTMAN TREISTER & GLATT
19 Attorneys for Interested Party, Elliott Management
20 1901 Avenue of the Stars
21 12th Floor
22 Los Angeles, CA 90067
23
24
25
BY: WHITMAN L. HOLT, ESQ. (TELEPHONICALLY)
K. JOHN SHAFFER, ESQ. (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
- 24 -
1
2 SUSMAN GODFREY LLP
3 Attorneys for the Official Committee of Equity Security
4 Holders
5 1201 Third Avenue
6 Suite 3800
7 Seattle, WA 98101
8
9 BY: EDGAR G. SARGENT, ESQ. (TELEPHONICALLY)
10
11
12 ATTORNEY GENERAL'S OFFICE
13 California Department of Justice
14 BY: JAMES R. POTTER (TELEPHONICALLY)
15
16
17 OFFICE OF THRIFT SUPERVISION
18 Interested Party
19 BY: MARTIN JEFFERSON DAVIS (TELEPHONICALLY)
20
21
22 ALLEN & COMPANY
23
24
25
BY: MICHAEL CHING (TELEPHONICALLY)
212-267-6868 VERlTEXT REPORTING COMPANY
www.veritext.com 516-608-2400
1
2 ALVAREZ & MARSAL
3 Interested Party
4 BY: JAMES CARREON (TELEPHONICALLY)
5 JON GOULDING (TELEPHONICALLY)
6 BILL KOSTUROS (TELEPHONICALLY)
7 JOHN MACIEL (TELEPHONICALLY)
8 BRIAN PEDERSEN (TELEPHONICALLY)
9 JIM TRUONG (TELEPHONICALLY)
10 CHRIS WELLS (TELEPHONICALLY)
11
12 ANCHORAGE ADVISORS
13 Interested Party
14 BY: HAL F. GOLTZ (TELEPHONICALLY)
15
16 APPALOOSA MANAGEMENT
17 BY: JIM BOLIN (TELEPHONICALLY)
18
19 ARISTEIA CAPITAL
20 Creditor
21 BY: STEVEN ROBINSON (TELEPHONICALLY)
22
23 AURELIUS CAPITAL
24 Interested Party
25 BY: ELEANOR CHAN (TELEPHONICALLY)
212-267 -6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 25 -
516-608-2400
1
2 BANK OF AMERICA SECURITIES
3 Creditor
4 BY: ALEXANDER KLIPPER (TELEPHONICALLY)
5
6
7 BARCLAYS CAPITAL
8 BY: BRAD J. SWEENEY (TELEPHONICALLY)
9
10
11 CANYON PARTNERS, LLC
12 Interested Party
13 BY: SERGEY KAMENSKY (TELEPHONICALLY)
14
15
16 CARVAL INVESTORS
17 For the WMB Bondholders
18 BY: JOEL HAWKINS (TELEPHONICALLY)
19
20
21 CENTERBRIDGE PARTNERS
22
23
24
25
BY: STANISLAV FEDORENKO (TELEPHONICALLY)
212-267-6868 VERlTEXT REPORTING COMPANY
www.veritext.com
- 26 -
516-608-2400
1
2 CHAPDELAINE CREDIT PARTNERS
3 Interested Party
4 BY: GREN DAY (TELEPHONICALLY)
5
6 CREDIT SUISSE FIRST BOSTON
7 Interested Party
8 BY: ANDREW REBAK (TELEPHONICALLY)
9
10 CRT CAPITAL GROUP, LLC
11 Creditor
12 BY: KEVIN STARKE (TELEPHONICALLY)
13
14 DAVIDSON KEMPNER CAPITAL MANAGEMENT
15 Creditor
16 BY: GAVASKAR BALASINGAM (TELEPHONICALLY)
17
18 DEBTWIRE
19 Interested Party
20 BY: TIBITA P. KANEENE (TELEPHONICALLY)
21
22 FARALLON CAPITAL MANAGEMENT
23 Interested Party
24
25
BY: MICHAEL LINN (TELEPHONICALLY)
212-267-6868 VERITEXT REPORTING COMPANY
www.veritext.com
- 27 -
516-608-2400
1
2 FORTRESS INVESTMENT GROUP
3 Interested Party
4 BY: BRYCE FRASER (TELEPHONICALLY)
5
6 GSO CAPITAL PARTNERS
7 Interested Party
8 BY: ABHIMANYU PRAKASH (TELEPHONICALLY)
9
10 HIGHBRIDGE CAPITAL MANAGEMENT
11 Interested Party
12 BY: JAKE A. BLAIR (TELEPHONICALLY)
13
14 JPMORGAN CHASE & COMPANY
15 For Creditor, JPMorgan Chase Bank, N.A.
16 BY: LAWRENCE N. CHANEN (TELEPHONICALLY)
17 TRAVIS EPES (TELEPHONICALLY)
18
19 KINGSTOWN CAPITAL
20 Interested Party
21 BY: CHRISTOF PFEIFFER (TELEPHONICALLY)
22
23 KS CAPITAL
24 Creditor
25 BY: MARC CIPRIANO (TELEPHONICALLY)
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1
2 MACQUARIE BANK
3 Interested Party
4 BY: CHRIS WARREN (TELEPHONICALLY)
5
6 MARATHON ASSET MANAGEMENT
7 Interested Party
8 BY: DANIEL PINE (TELEPHONICALLY)
9
10 MILLER TABACK SECURITIES
11 Interested Party
12 BY: JOSH GALE (TELEPHONICALLY)
13
14 MORGAN STANLEY
15 Creditor
16 BY: JIM F. FARNER (TELEPHONICALLY)
17
18 MORGENS, WATERFALL, VINTIADIS & CO.
19 Interested Party
20 BY: MICHELE WHALEN (TELEPHONICALLY)
21
22 ONE X CREDIT PARTNERS
23 Claimant
24
25
BY: STUART KOVENSKY (TELEPHONICALLY)
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516-608-2400
1
2 OWL CREEK MANAGEMENT
3 Interested Party
4 BY: MARK KRONFELD (TELEPHONICALLY)
5
6 PAULSON & COMPANY
7 Creditor
8 BY: DAN KAMENSKY (TELEPHONICALLY)
9
10 PETER J. SOLOMON COMPANY
11 For Committee of Security Holders
12 BY: ANDERS MAXWELL (TELEPHONICALLY)
13
14 PINE RIVER CAPITAL MANAGEMENT
15 Interested Party
16 BY: MATTHEW DUNDON (TELEPHONICALLY)
17
18 REALM PARTNERS
19 Creditor
20 BY: BRIAN MOORE (TELEPHONICALLY)
21
22 SILVER POINT CAPITAL
23 Creditor
24 BY: JOHN T. MIRANOWSKI (TELEPHONICALLY)
25
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516-608-2400
1
2 SILVERLAKE
3 Interested Party
4 BY: ERIC HSIAO (TELEPHONICALLY)
5
6 STONE LION CAPITAL
7 For the WMB Bondholders
8 BY: MITCHELL SUSSMAN, IN PRO PER (TELEPHONICALLY)
9
10 TACONIC CAPITAL
11 Creditor
12 BY: MARC SCHWARTZ (TELEPHONICALLY)
13
14 TALAMOD ASSET MANAGEMENT, LLC
15 Creditor
16 BY: JAY STEEN (TELEPHONICALLY)
17
18 TALPION
19 Interested Party
20 BY: PATRICIA CHAO (TELEPHONICALLY)
21
22 TEJAS SECURITIES GROUP
23 Interested Party
24
25
BY: ROB HALDER (TELEPHONICALLY)
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516-608-2400
1
2 THE SEAPORT GROUP
3 Interested Party
4 BY: GEORGE BRICKFIELD (TELEPHONICALLY)
5
6 UBS SECURITIES LLC
7 Interested Party
8 BY: ARIN J. WOLFSON (TELEPHONICALLY)
9
10 VENOR CAPITAL
11 Interested Party
12 BY: MICHAEL SCOTT (TELEPHONICALLY)
13
14 WASHINGTON MUTUAL, INC.
15 Debtor
16 BY: DOREEN LOGAN (TELEPHONICALLY)
17 ROBERT WILLIAMS (TELEPHONICALLY)
18 MICHELLE WILLINGHAM (TELEPHONICALLY)
19
20 YORK CAPITAL MANAGEMENT (U.S.)
21 For the WMB Bank Bondholders
22 BY: WILLIAM VRATTOS (TELEPHONICALLY)
23
24 DAN BULLOCK, IN PRO PER (TELEPHONICALLY)
25 Interested Party
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516-608-2400
1
2 ANNA KALENCHITS (TELEPHONICALLY)
3 Interested Party
4
5 ROBERT TAKACS, IN PRO PER (TELEPHONICALLY)
6 Interested Party
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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1 PRO C E E DIN G S
2 THE CLERK: All rise. please be seated.
3 THE COURT: Good morning.
4 MR. ROSEN: Good morning, Your Honor. Brian Rosen,
5 Weil, Gotshal & Manges, on behalf of the debtors. With me
6 today are my partner John Mastando, Mark Collins from Richards
7 Layton & Finger, also Chun Jang, and also Susheel Kirpalani
8 from Quinn Emanuel.
9 Your Honor, we do have quite a full agenda this
10 morning, and I'm not sure exactly which order the Court would
11 like to entertain things. I could, Your Honor, start with a
12 status on the disclosure statement and then defer that, because
13 I think the Court would probably want to take that in
14 conjunction with some other matters which are on the agenda.
15 THE COURT: Okay.
16 MR. ROSEN: Your Honor, we have worked diligently over
17 the last few weeks, and I believe we informed the Court last
18 time that we were here that we availed people of the
19 opportunity, to the extent that they still had any additional
20 comments on the disclosure statement, to provide us with a
21 letter that we would then send out with the disclosure
22 statement. And, in fact, when we were here, Your Honor -- I
23 believe it was on July 8th -- we had previous -- before that
24 hearing, filed with the Court those letters that we had
25 received.
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1 There were some parties that did not choose to take
2 that opportunity. We have continued to try to resolve any
3 remaining objections. And I think, but for those which have
4 issues with respect to the release and therefore are arguing as
5 to the nonconfirmability of the plan, we have resolved all of
6 the disclosure statement objections but perhaps one, which is
7 that of Mr. Steinberg and his client Nantahala. We have
8 included language in the disclosure statement, but I believe
9 that Mr. Steinberg believes that more should be added. We did
10 give Mr. Steinberg the opportunity to submit a letter; the
11 Nantahala/Broadbill Group decided that that was unnecessary.
12 So, Your Honor, as far as we are concerned, that is
13 the sole issue as far as the adequacy of the information
14 contained in the disclosure statement. All other parties have
15 provided us with a letter or have agreed that there is
16 information contained in the disclosure statement that is
17 adequate. If I've misstated that, Your Honor, I'm sure people
18 will jump up behind me and tell me that I have done so.
19 With that, Your Honor, I will move now to the next
20 items on the calendar, and we can come back to the disclosure
21 statement at the end of the day.
22
23 on that.
24
25
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THE COURT: Yeah, let's do that. I'll save argument
MR. ROSEN: Okay.
MR. KIRPALANI: Good morning, Your Honor.
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1 THE COURT: Good morning.
2 MR. KIRPALANI: For the record, Susheel Kirpalani of
3 Quinn Emanuel, on behalf of the debtors.
4 Your Honor, I -- I'm assigned to address the Court
5 with respect to where we stand with the equity committee's
6 motion -- or renewed motion for an examiner.
7 THE COURT: Okay.
8 MR. KIRPALANI: Following our getting together last
9 time and the chambers conference and working with the parties
10 really around the clock over the last ten days or so to try to
11 reach some sort of accommodation, resolution, understanding, as
12 to really how to balance the needs of the case -- because
13 that's how we see our role, Your Honor. We're not really -- we
14 understand at one end of the spectrum there are creditors
15 and we'll talk about that, and I'm sure they'll be heard as
16 well -- that very much want to see the plan move forward as
17 quickly as possible, because there is a settlement that has
18 been negotiated by numerous parties around the table that would
19 provide over 6.1 to 6.8 billion dollars of value to creditors
20 who at the beginning of this case were looking at potentially a
21 de minimis recovery. And at the other end of the spectrum we
22 have the Felatively newly formed equity committee who has been
23 doing an investigation of the claims and causes of action of
24 the estate, both the ones to be settled and the ones that are
25 still being retained by the estate, for whoever's benefit that
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1 they inure to post-confirmation, and they're unhappy with the
2 settlement.
3 So they came forward, as Your Honor knows, requesting
4 an examiner. Initially the Court declined to appoint an
5 examiner and asked that the equity committee perform the
6 investigation that as a fiduciary they should, and we'll move
7 forward with this case. And I think where we are right now is
8 parties have asked us to consider what could be the right way
9 to balance the various issues, Your Honor. And from the
10 debtors' perspective, it doesn't come as a surprise to the
11 Court, notwithstanding that we have filed objections to the
12 appointment of an examiner, and the equity committee I think
13 last night filed additional briefing with respect to that, I'm
14 not sure really fighting on all that much anymore.
15 The key issue for us, Your Honor, is how to be an
16 appropriate steward for these cases. The key issue for us is
17 how can we accommodate the needs of the equity committee and,
18 if they feel it's necessary to have an examiner, how can we
19 live with that and allow the case to also move forward on a
20 reasonable -- reasonably prompt basis. Obviously it can't go
21 forward on the exact timetable that we would like right now,
22 but is it really going to be a case that falls off the rails on
23 our watch? And that's not something that we want to see
24 happen, because, notwithstanding people being unhappy with the
25 settlement, there are a lot of parties who really do want to
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1 see it go forward and, from the traditional wisdom of Chapter
2 11 cases, those are the parties that are, quote, "in the
3 money". And I'm not slanting the -- you know, the junior
4 stakeholders of the estate. I'm not trying to slight them, I
5 mean; I often represent those constituents. But I think this
6 case is particularly difficult to comprehend for people that
7 are new to the table. And this is not the beginning of this
8 Chapter 11 case, you know. I'm a latecomer to the case,
9 frankly, and I've been around for over a year.
10 So I think Your Honor knows that, the maturity of this
11 case being almost two years, the work that's been done, that
12 there does have to be some sort of way to balance, and I think
13 that's where we're coming to the Court and asking Your Honor to
14 help us with that.
15 And so the bottom line or the headline, Your Honor, is
16 that the debtors would consent to the appointment of an
17 examiner, notwithstanding our filed objections to the contrary,
18 provided that we can move forward on a parallel track. We had
19 thought that we had reached that type of accommodation with the
20 equity committee but, reading their most recent pleadings, I
21 don't think that -- I think maybe I misunderstood.
22 So what I'd like to do, Your Honor, is, since I think
23 it's a much narrower issue than the original argument would
24 have entailed over whether or not, you know, there should be an
25 examiner, it's almost like that's -- it's besides the point. I
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1 think the debtors believe, for whatever reason, the case would
2 benefit from iti the case would benefit from having an
3 examiner. And the issue really is one of scope and one of
4 timing.
5 And so from our perspective, we thought and we tried
6 and we negotiated and we worked around the clock to try to
7 accommodate what the equity committee wanted in terms of the
8 scope, what the FDIC wanted in terms of the scope, what
9 JPMorgan Chase wanted in terms of the scope, what the
10 creditors' committee wanted in terms of the scope. At the end
11 of the day, Your Honor, I think the debtors believe it's really
12 not our place to try and ask the Court to impose a particular
13 scope.
14 The examiner's going to be here for the benefit of the
15 case, not for the benefit of us. And only Your Honor knows how
16 an examiner could be helpful. And I think what we would ask is
17 that the Court determine what that scope is but bearing in mind
18 the most important issue, in fact the only issue, that I want
19 to speak to today, which is that of timing. And we don't want
20 to have the type of examiner that would exist early in a case
21 where the examiner will be appointed, they'll do a little work,
22 they'll come back in thirty days, they'll tell the Court they
23 need to have six months, four months, whatever the case may be.
24 We're just not there. And I think, you know, the
25 practicalities of this case are important for people to
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1 understand. It's not a brand new case, Your Honor.
2 I do have some slides that I'd like to hand up and
3 pass out, if I could, just to walk through some of the issues
4 I'd like to address the Court on.
5 THE COURT: You may.
6 MR. KIRPALANI: Thank you, Your Honor.
7 (Pause)
8 MR. KIRPALANI: There are some additional copies here
9 on the table if there's anybody that needs.
10 So, Your Honor, as I was saying a few minutes ago,
11 provided that the debtors' solicitation and confirmation
12 process can proceed on a parallel track -- and obviously the
13 dates will need to be adjusted, we understand that, but we ask
14 the Court to help us in that regard, because ultimately this
15 examiner, I think, is for the benefit of a case of this
16 importance and a case of this magnitude's process and
17 appearance as opposed to anything in particular that we think
18 the examiner's going to find.
19 Most importantly, as I said, the debtors believe that
20 the scope of the investigation should be fashioned by the Court
21 in the way that the Court thinks would aid the efficient
22 administration of the cases. In that vein, there should be
23 some temporal limitations on the investigation because to have
24 limitations like that really are reasonable under the
25 circumstances of a case of this maturity. And it's not just
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1 the duration of the case. Substantial investigatory work has
2 been done by us, by the creditors' committee, and even by the
3 newly formed equity committee. This is not a clean-slate case.
4 It's not like Lehman Brothers; it's not like Enron. This is
5 not those cases.
6 An examiner can also start immediately. This is a
7 situation where there's a vast amount of information tied up
8 with a bow that all one needs to do is push an electronic
9 button and, loom, they can start. And it's searchable and it's
10 printable, and it can be done very, very quickly.
11 Your Honor, we'll also make ourselves available, we'll
12 make the debtors available, we'll make the lawyers available,
13 we'll make -- I'm sure the creditors' committee will make their
14 advisors available to an examiner to try to get up to speed as
15 soon as possible. The equity committee is already pretty well-
16 versed in the issues that are important to them and the issues
17 that affect the potential value of the causes of action. And
18 they will make themselves available and make their views known
19 to the examiner as well.
20 The most important thing to understand, Your Honor, is
21 that the delay costs our junior creditors, and frankly even the
22 equityholders. But, fine, that's their risk; they want to run
23 it; they don't care about that. In our view, a little bit, I
24 think, Your Honor, and not to be pejorative, but they're trying
25 to swing for the fences a little bit here. And -- but the
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1 junior creditors aren't. And junior creditors do suffer by
2 delay. You know, and that cost, Your Honor, is thirty million
3 dollars a month. But I want to be clear so that Your Honor
4 understands what I mean when I say that. That's not the cost
5 of the professionals. The cost of the professionals is above
6 that. That's the cost of creditors collecting post-petition
7 interest prior to the recovery of the equityholders. That's
8 the burn. There's billions and billions of dollars of
9 indebtedness on this debtor. And for equityholders to receive
10 any recovery, those -- that post-petition interest would have
11 to accrue. And for the junior stakeholders, which are the
12 contractually subordinated bondholders, they're suffering that
13 right now.
14 So at the time of the entering into of the settlement,
15 general unsecured creditors were believed to be receiving a
16 hundred cents on the dollar, and the junior subordinated bonds
17 would receive around eighty-eight cents on the dollar. You'll
18 hear from the creditors' committee in a few moments, Your
19 Honor, but that that number is quickly dwindling and going down
20 with every passing day. That's not to say that, 'Well, too
21 bad, that's the way it is in Chapter 11,' because it is
22 delay is something to be expected; there are a lot of factions
23 in a case. But we're asking the Court to do what we've tried
24 to do unsuccessfully, which is to balance everyone's interests
25 and bring people to the table, and I just think we're at an
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1 impasse.
2 The examiner can certainly build upon the significant
3 work that's been completed to date. As I mentioned, three
4 different fiduciaries, all of whom are suspicious of each
5 other, have done an investigation of the potential claims, who
6 could benefit from those claims, how difficult are the claims
7 to be proven, and the like.
8 And with respect to the work that we've done, Your
9 Honor, I think you know as well as anyone, when we came aboard,
10 the first thing we did was very aggressively pursue JPMorgan
11 and the FDIC, and tried very hard to move the case as quickly
12 as possible, even bifurcated the types of relief we were
13 seeking from counterclaims in the adversary proceeding that
14 JPMorgan had filed against us, which caught the debtors a
15 little bit off guard, as Your Honor knows, and we quickly
16 counterclaimed with eighteen counterclaims. We separately
17 moved, in a different complaint, for turnover for four billion
18 dollars of what I called my -- you know, my ATM card, 'I want
19 to get my four billion dollars out of the bank, Your Honor, '
20 and we did that separately because we wanted to proceed
21 quicker.
22 And then with respect to the so-called business tort
23 claims, which I think are really at the heart of what the
24 equity committee feels we haven't done enough work on, we
25 attempted to use Rule 2004. And to the extent the Court
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1 authorized it, we did use Rule 2004, we did investigate. And
2 we do understand the potential merits and potential weaknesses
3 of that claim, which is not something that people are really
4 willing to accept, at least people that are unhappy with the
5 settlement, but it is what it is.
6 Other investigations, Your Honor, which I think is
7 important for the record, other investigations into Washington
8 Mutual have taken place, not just by the debtors, not just by
9 the creditors' committee, not just by the equity committee, but
10 by folks in Washington, D.C. Others have done this; they
11 published reports on exactly what caused Washington Mutual to
12 fail.
13 So, again, unlike a case like Lehman Brothers, you
14 know, this one is more mature. This one is at a different
15 stage in life. And the fact that the U.S. Trustee waited until
16 very late in the case to appoint an equity committee, it's not
17 their fault, but it's the practicality of the situation that
18 Your Honor is facing.
19 You know, the next point, Your Honor, is that the
20 fruits of our efforts, the litigation, the investigative
21 efforts that we've done, will be immediately available. On
22 pages 3 -- or slides 3 and 4, we go through the tons of
23 material that we would make available to the examiner, which
24 we've also made available to the equity committee. I mean,
25 you'll hear some noise, and I think that they sought to file
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1 things under seal, trying to complain that we haven't shared
2 everything, Your Honor. We have shared everything. We've
3 shared everything that would be of any interest or relevance to
4 either an equity committee or an examiner. I think where the
5 issue falls is we haven't gone and searched every e-mail that
6 we have in our computer databases, Your Honor. But every memo
7 that was written, every letter that was written, every analysis
8 that we did, we've shared it, Your Honor, and we would share it
9 with the examiner immediately and walk them through it as well.
10 In addition, JPMorgan and the creditors' committee
11 have deposited documents into this depository, which the
12 examiner can use. We wanted the equity committee to use it;
13 they used it a little. I think they dabbled a bit in it and
14 then said 'Okay, you know, now we want an examiner to do the
15 same thing or to do it better or to do it longer, or to give us
16 some more heft.'
17 But I think that the bottom line, Your Honor, is,
18 given the work that we've done, the cooperation that we've been
19 able to muscle out of JPMorgan, that the examiner will have a
20 pretty easy time of going through the issues. This is not a
21 case which Your Honor has seen for years where a case is filed,
22 the debtor is so focused on reorganization, so focused on
23 employee defection, that the last thing they want to do is try
24 to gather documents that people are asking for and put them in
25 a place where people can find them and make witnesses
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1 available. That takes forever; that takes months. And that's
2 a typical examination. That's not this case. That's not this
3 case, Your Honor.
4 Most importantly, Your Honor, there is a valuable
5 settlement here that does hang in the balance. The settlement
6 is the product of extensive litigation, extensive analysis and
7 arm's-length negotiation efforts, not just by us and JPMorgan
8 but by numerous parties, Your Honor, numerous third parties who
9 themselves are innocent stakeholders of the estate. And they
10 have reached the conclusion, everyone reached their own
11 business decision, that this settlement was well worth entering
12 into.
13 The settlement is not chump change. 6.1 to 6.8
14 billion dollars of value, Your Honor, that includes the 4
15 billion dollars, you know, that I could put on my ATM card.
16 But it's also 2.1 to 2.8 billion dollars ahead of that. That's
17 on account of all of the other potential claims: the avoidance
18 action claims, Your Honor; the business tort claims; the
19 general noise; the desire to buy global peace. That's what
20 accomplished 2.1 to 2.8 billion dollars incrementally. That's
21 what's getting creditors paid in full here.
22 This was not the easiest case in the world for someone
23 to hand to us and say 'Hey, go try to get the best deal you
24 can' and we came up with very little. This is a case where
25 creditors in this case, which two years ago or a year and a
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1 half ago seemed impossible, are going to get paid in full or
2 close to in full for the contractually subordinated creditors.
3 You know, the settlement, Your Honor, which I know
4 Your Honor's somewhat familiar with it from the disclosure
5 statement, and we'll obviously have a full hearing on it at the
6 right time, but it does include a turnover of the four billion
7 dollars in deposited funds, free and clear of any kind of
8 recharacterization complaints that JPMorgan made, free and
9 clear of any setoff rights that JPMorgan or FDIC had raised
10 with the Court previously. And that issue was not easy. That
11 issue was submitted on summary judgment and it was sub judice
12 for quite a long time, because Your Honor recognized this is a
13 complicated thorny issue. We're resolving that under the
14 settlement.
15 And in addition to that, 2.3 to 2.4 billion dollars in
16 tax refunds would come directly to the estate. And so I know
17 Your Honor knows a little bit about tax law that there is a
18 real risk to the estate that, absent a settlement, the tax
19 refunds will go to the bank, to the subsidiary as the one that
20 generated the losses, and not to the parent company. Getting
21 that money directly to us is real tangible value.
22 And even if -- Your Honor, even if we were to win in
23 court that we get the claim, we get the money from the IRS
24 directly, the bank in the receivership would still have an
25 intercompany claim under the tax-sharing agreement against us.
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1 So they would become a creditor of the estate, which means they
2 would benefit from that prior to shareholders ever benefiting.
3 And in terms of other assets, there's hundreds of
4 millions of dollars in additional quieting of title of assets
5 that the estate gets to keep; it's over 300 million dollars.
6 JPMorgan's assuming over 600 million dollars of liabilities.
7 We're not going to have to terminate the pension plans; that's
8 a huge benefit to the innocent -- I would say the innocents
9 that were working for Washington Mutual in the pre-petition
10 period, and it's a global release between all other parties.
11 And most importantly, as in any Chapter 11 case where
12 we're often criticized allover the country for the length and
13 delay and cost of Chapter II, this gets money to people, to
14 creditors, sooner rather than later. We're not talking about
15 years of protracted litigation. We're not talking about years
16 of delay. And the time value of money really is important to
17 people. And when people cut deals, that is what they base
18 their decisions on, for better or for worse. That is how deals
19 are done in Chapter II, and Your Honor knows that. So as I
20 said, this settlement has enormous value to the estate.
21 Now, with respect to the strengths, I think Your Honor
22 knows we believe very strongly in the claims themselves. But,
23 you know, on slide 7 I talk a little bit about the other side.
24 You know, the other side is what's JPMorgan going to say, and
25 what have they said, if we were to try to pursue what the
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1 equity committee thinks are the most valuable claims, the
2 business tort claims, which I think the equity committee
3 believes we didn't vigorously or aggressively pursue as hard as
4 we should have or could have.
5 Your Honor, these are not run-of-the-mill avoidance
6 action type claims. These are the bet-the-ranch type scorched-
7 earth litigation claims that are tremendously complex given the
8 time period we're talking about in history. And now we're two
9 and a half years or three years hence since the summer of 2007,
10 but I think someone in the position that the Court is in
11 remembers quite clearly what the world was like in 2007 and
12 2008, and hopefully we never see that again.
13 But with respect to the business tort claims, I think
14 one of the most fundamental misapprehensions that we've got
15 from people who complain about the settlement not providing
16 significant value or sufficient value is they don't understand
17 there's a real risk. We'll of course argue to the contrary
18 whoever we have to litigate again. There's a real risk that a
19 Court finds the parent company doesn't even own those claims,
20 that the damage was the damage done to the bank; the damage was
21 the damage done to the assets of the bank. And while the
22 parent company WMI had damage done to its equity interest in
23 the bank, the bank has fourteen billion dollars of funded debt
24 that would need to be cleared before any of that value and
25 damage that was done to the bank, by whatever alleged breach of
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1 confidentiality that we argued JPMorgan occasioned on the
2 debtors -- before that value ever trickled up to us, we'd have
3 to deal with the fact of who owns the claims. It's certainly
4 not that clear an issue. Although we think we've got good
5 arguments, JPMorgan, I'm sure, would tell this Court or any
6 other court that they've got better ones, and that's something
7 that we had to consider and that we do consider.
8 The other issue to bear in mind, Your Honor, goes back
9 to the issue of what did the world look like in 2007 and 2008.
10 You think JPMorgan is really going to stand up and agree with
11 us 'Yep, you're right. Okay. If we did something, we must
12 have caused the downfall of Washington Mutual'? No, they're
13 going to say other things caused the downfall of Washington
14 Mutual. They're going to point to what Congress found in terms
15 of an investigation. They're going to point to what the world
16 looked like after the mortgage crisis.
17 THE COURT: All right, we don't have to get into the
18 details.
19 MR. KIRPALANI: We don't. We don't, Your Honor --
20 THE COURT: So
21 MR. KIRPALANI: -- but I want the Court to understand
22 that this is not quite as black and white as has been alleged.
23 THE COURT: Well, I don't have to hear the white part
24 of it, okay?
25
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1 I think the other point to bear in mind, Your Honor,
2 is that currently the settlement is set to expire by its terms,
3 or the parties to settlement have the right to walk away, if
4 it's not implemented by August 31st. Clearly, that's not going
5 to happen. We are where we are, and we've talked to all of the
6 parties about needing to be flexible if they want to hold onto
7 something that they believe is valuable. But every creditor
8 has their own prerogative to decide whether or not it's better
9 to go forward with the settlement, as was negotiated at the
10 price which is going to stay constant, notwithstanding any kind
11 of delay.
12 FDIC cannot give us any kind of carte blanche that,
13 yes, we can keep extending forever while an examiner does
14 whatever an examiner wants to do. Same thing with JPMorgan,
15 and we don't blame them for that. But the point is, same thing
16 for the creditors, because, again, especially the junior
17 creditors who are the ones right ahead of the equity, they're
18 losing money every day, Your Honor. And for all of these
19 reasons, while the debtors are willing to consent to the
20 appointment of an examiner, it is on the condition, Your Honor,
21 that we do -- be an appropriate steward for the cases and allow
22 the cases to proceed on a parallel track. In our view, an
23 examiner can get up to speed immediately and prepare and file a
24 report on whatever scope the Court thinks would be helpful to
25 the Court within seventy-five days.
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1 THE COURT: Thank you.
2 MR. KIRPALANI: And that's what we'd ask, Your Honor.
3 THE COURT: Thank you.
4 MR. KIRPALANI: Thank you.
5 MR. NELSON: May I approach on a privilege issue, Your
6 Honor?
7 THE COURT: A privilege issue? You may.
8 This will be off the record.
9 (Off the record)
10 MR. NELSON: Good morning, Your Honor.
11 THE COURT: Good morning.
12 MR. NELSON: May it please the Court. Justin Nelson
13 of Susman Godfrey, representing the equity committee.
14 Before anything else, may we just have these slides
15 docketed so that they become part of the Court's record?
16 THE COURT: All right, I'll mark it as Debtors' 1.
17 (Debtors' slides were hereby marked for identification as
18 Debtors' Exhibit I, as of this date.)
19 MR. NELSON: We heard from the debtors just now, I
20 think essentially just conceding that an examiner was
21 appropriate. We of course wholeheartedly agree that an
22 examiner is necessary here. And we also agree that the issues
23 are for scope and for timing.
24 Let me just address briefly what the debtors just
25 said. In terms of working around the clock, look, I mean, we
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1 have not heard from the debtors in over a week on any of these
2 issues. It's actually, to be clear, exactly a week when we
3 last asked to speak to them about these things. They just made
4 a -- essentially a plan confirmation argument. I'm not going
5 to permit the to give the other side of the argument here
6 about what is white, but I think the question is not whether
7 it's black or white, Your Honor; it's a question of we don't
8 know whether it's black or white. And if it turns out that
9 it's black, that's fine and we'll accept that. The problem is
10 that there has been no underlying investigation into what
11 exactly is at issue here.
12 And they keep on referencing these other
13 investigations, that they've been investigated to death, but we
14 now know that, far from being investigated to death, the claims
15 were hardly investigated at all. For the debtors to argue that
16 the claims were investigated to death is like saying that a
17 paper cut is a fatal injury. There has not been an
18 investigation here.
19 They talk about the documents that are going to be in
20 the depository and how they are now searchable. That was not
21 the case up until early July when we first looked at the
22 database. This whole database that they had -- you could not
23 even search this database. with the debtors' permission and
24 without waiving any work product, we have seen documents from
25 the debtors that show that they have not reviewed any of the
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1 legacy Washington Mutual documents, millions and millions of
2 documents that they say themselves would take fifty reviewers
3 at least three months to review what's in them. We think --
4 and that's just for the legacy documents, Your Honor. There's
5 also -- they say in that same document that they haven't
6 reviewed the hundreds of thousands of post-petition documents
7 eithe!i that would also take a long time. So, yes there is a
8 depository, and yes it will take a long time to go through, and
9 yes they didn't even have access, or they certainly didn't
10 review those documents in terms of making their own analysis
11 here.
12 They also discussed the potential problems that might
13 exist with the claims. Again, the -- what we have seen from
14 the work product is about how the investigation needs to
15 happen. It's not that the claims are meritlessi it's that the
16 claims need to go forward and that there needs to be an
17 investigation, which has not happened.
18 Again, the debtors talk about how -- that there will
19 be -- that they're settling for between 6.1 and 6.8 billion
20 dollars, which includes the 4 billion dollars in the turnover
21 action. But the claims here are worth in the tens of billions,
22 potentially as much as thirty billion dollars here. And so to
23 say that yes they're settling for an out that 10 and behold
24 pays off the noteholders and the creditors almost in full and
25 leaves the equity with nothing, well, that's exactly why we
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1 have a concern. And the investigation here needs to be more
2 than a whitewash. It needs to be able to say that the examiner
3 can look at it and can fully investigate the claims here.
4 We believe that, at least with respect to the scope,
5 that it is inappropriate to limit the scope to simply whether
6 the settlement is fair. That's a question for this Court. The
7 real issue is whether there will be an investigation. And the
8 equity committee believes strongly that the examiner should
9 have full power to investigate the claims and the assets of the
10 estate here. That's what essentially we're asking fori that's
11 what our revised proposed order that we submitted asked for.
12 An examination should not be limited simply to whether
13 the proposed settlement is fair. Confining the investigation
14 merely to a review of the debtors' decisions, based upon the
15 incomplete information the debtors assembled, may significantly
16 impair the effectiveness and usefulness of the examiner's
17 investigation. And if an examiner will undertake to
18 investigate the claims and assets anyway, then a limitation on
19 whether the proposed settlement is fair is superfluous.
20 On timing, we have conferred with the u.s. Trustee,
21 and our revised proposed order, in paragraph 7, suggests a time
22 frame of 120 days for a preliminary work plan. Now, the
23 reality is, Your Honor, is that it may well take longer than
24 that, but what we don't want to have is a firm date for plan
25 confirmation right now, because otherwise it simply gives the
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1 settling parties time to run out the clock. We've already seen
2 the delay tactics that they've involved. We don't know, for
3 example, whether the FDIC or JPMorgan will be cooperative. We
4 don't know how cooperative the debtors will be. We don't know
5 how long it's going to take to review some of the information
6 that has not been reviewed by the debtors.
7 So we have suggested 120 days. But as an alternative
8 to picking a date now, the Court can give an examiner a few
9 weeks to prepare a proposed work plan and pick a time frame
10 after that in consultation with an examiner, with all sides
11 knowing the importance of having this resolved quickly.
12 The equity committee also would suggest that it may be
13 helpful to have monthly status updates with the examiner and
14 the Court and the parties to make sure that things are moving
15 quickly. The equity committee, like everybody else, has no
16 interest in having this investigation stall out, but it's also
17 important that an investigation be done. And to say that an
18 investigation can happen within a certain time frame, seventy-
19 five days, is completely unrealistic given the same scope that
20 the debtors have acknowledged of the work that still needs to
21 be done.
22 So, in short, Your Honor, we believe strongly that
23 there needs to be an examiner, that the examiner should have
24 power to investigate the claims here. We know, for example,
25 that the
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1 evidently, by the debtors. And JPMorgan did not even tell the
2 debtors of the existence of this database. And so we just
3 don't know the actual scope, and we'd like the examiner to at
4 least have a chance to weigh in on what exists.
5 And with that, Your Honor, I will reserve my time,
6 unless you have any more questions.
7 THE COURT: Thank you. No.
8 MR. CALIFANO: Good morning, Your Honor. Tom
9 Califano, DLA Piper, on behalf of the FDIC.
10 Your Honor, we submitted a statement objecting to the
11 order that the equity committee filed, and we also submitted
12 our own proposed order. And I think the first step, and I
13 haven't heard really either side talk about it, is why are we
14 appointing an examiner now at this point, twenty-two months
15 into this case, after millions of dollars have been spent
16 coming to a resolution, and where the debtors are poised to, if
17 the plan is confirmed, distribute about six billion dollars to
18 various constituencies. Now, why are we doing this, and why
19 are we delaying everything for an out-of-the-money
20 constituency, and what's going on here?
21 Now, either it's we're here to look at the settlement
22 agreement, which is the nucleus of the plan, and that makes
23 sense in the context of their motions that mention the
24 settlement agreement on almost every page; or are we trying to
25 set the clock back, hit the reset button and look at everything
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1 the debtors did from the beginning of this case? We don't
2 think that's appropriate, we don't think that's timely, and we
3 don't think that's the role of an examiner.
4 I think there's a motion pending somewhere for a
5 motion for a Chapter 11 trustee. If that's what we're looking
6 at doing, then we should be talking about a trustee here. We
7 shouldn't be talking about an examiner. If, however, we're
8 looking at the settlement agreement and at the plan, we should
9 look at what the examiner does in that context and we should
10 choose a scope of examination that facilitates that process.
11 Now, if you look at their filing they filed last
12 night, and you've heard them throughout and throughout 'No
13 factual inquiry is done. We need a factual examination,' well,
14 we need a factual examination in the context of the legal
15 inquiry. And if we're here looking at the settlement
16 agreement, Your Honor, this is not new. We've cited authority
17 and we brought to Your Honor's attention Judge Gerber's
18 transcript in Lyondell. Well, the issue is was the settlement
19 process free from collusion and undue influence. That's an
20 element in our order. Did the debtor -- was the debtor's
21 conduct free of conflicts of interest? That's in our order.
22 Did the debtor's management and board properly exercise its
23 business judgment? That's in our order. So if we're looking
24 at the settlement agreement, that's what the examination should
25 be about, Your Honor. It's not controversial.
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1 Now, the debtors -- there's no claims that they're
2 talking about that haven't been asserted --
3 I'm sorry, I have a problem with my throat today.
4 -- haven't been asserted in one place or another. And
5 they were settled as part of the settlement agreement. But
6 it's not like they missed the boat. So you're looking at
7 whether these claims were properly settled. Once again, it's
8 the same inquiry. It's not break everything up, start over
9 from scratch. That's not the proper inquiry.
10 Now, Mr. Nelson said if you follow the debtors'
11 that the debtors' as you follow the debtors' statement about
12 their investigation, then you're acknowledging that a paper cut
13 is a fatal injury. Well, if that's really the way they
14 believe, they should put the 9019 hearing on tomorrow, because
15 they're ready; because if they can show that, that the debtors
16 didn't properly exercise their business judgment, that the
17 debtors' investigation was unreasonable, that the debtors
18 didn't make a reasonable judgment here, then they've got a good
19 case. But I don't think that's really what this is about.
20 This isn't about the settlement. It can't be about the
21 settlement, Your Honor, because if it was about the settlement,
22 then they'd be ready and we'd have confirmation going and we'd
23 be moving this process along.
24 What this is about is, if you look at it in the
25 context of their shareholder action, they want to replace the
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1 debtor. They want to replace the debtor's counseli they want
2 to start over from scratch. They don't like the way this
3 worked out, and they want another shot at it because they want
4 to be in the money. Well, that may be what they want, but it's
5 not appropriate in this context.
6 So they can come back on the trustee's motion and they
7 can argue that. They can try and replace them in the
8 shareholders' action and try and start this over. It's not
9 appropriate here. We have a settlement agreement and a plani
10 we need -- Your Honor needs certain information that relates to
11 that. What doesn't relate to it is an inquiry into the
12 underlying merits. You have to look at what the debtor looked
13 at, you have to look and see if there was undue influence or
14 collusion in the process, and you have to see if the debtor,
15 their management, their professionals were free of conflicts.
16 Then you determine whether the settlement falls within the
17 lowest range of reasonableness. That's the process. If we're
18 here for the inquiry they want, it's not appropriate in the
19 context of an examiner.
20 Now, as I've said, all these claims have been
21 investigated, all these claims have been asserted. We've
22 talked about the legal basis. What they don't want to face,
23 Your Honor, they don't want to face -- because it would limit
24 their argument, they don't want to face that the law on
25 settlements limits the scope of the inquiry.
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1 to face that FIRREA, the statute which governs bank closures
2 and the FDIC's conduct, limits the claims that may be brought.
3 The claim regarding closure, that had a thirty-day time limit.
4 It's gone. The claims related to the sale are limited. The
5 derivative claims, for large part, belong to the receiver.
6 That's just the law. We don't need an examiner. We've cited
7 the authorities, and we've cited them in motions to dismiss in
8 the various fora.
9 And finally, Your Honor, we need to think about the
10 timing here. This case has been going on for twenty-two
11 months. I mean, I wasn't consulted about the seventy-five days
12 that the debtors want. I think that's inappropriate. Forget
13 about their open-ended investigation. Seventy-five days is way
14 too long. The settlement has been out there in the public
15 domain for months now, okay? If they were properly focused in
16 their inquiry, they should be ready to contest a settlement
17 tomorrow, but they're not, because that's not what this is
18 about. This is about a litigation tactic for them to open up
19 from the beginning.
20 Now, the settlement expires, as we said in our papers,
21 August 30th. I can't tell you how long we're going to continue
22 to extend the settlement. It's not going to be an open-ended
23 extension, Your Honor; I don't what it is. But it would be a
24 shame for this estate to lose six billion dollars of
25 distributable assets, lose the opportunity to resolve this case
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1 now when we're twenty-two months into it, because we have an
2 out-of-the-money constituency who's playing for some tens of
3 billions of dollars of claim that no one's articulated.
4 And let's remember, while this case has been going on,
5 there have been other people who have asserted claims in other
6 forums. There's other litigation going on against -- with the
7 FDIC and JPMorgan Chase. Your Honor's familiar with the
8 American National litigation. None of those claims are
9 proceeding. And the American National litigation's gone, all
10 right? The motion the case was dismissed recently. The
11 plaintiff's motion to replead was denied. That's the context
12 here, Your Honor. They are trying to ignore the law.
13 I think we need to keep this examination -- to keep
14 this deal together. And remember, Your Honor, this is not a
15 deal that was done easily. Months of negotiation. The deal
16 almost fell out of bed several times. There's a lot of value
17 in this transaction, a lot of people whose clients are directly
18 affected, spent a lot of time getting this deal done. It would
19 be a shame to lose this deal because somebody, who's got out-
20 of-the-money clients, doesn't really understand the process and
21 doesn't want to focus on the law, gets to derail this process.
22 So we've submitted an order that we think is
23 appropriate; it deals with the issues that relate to the
24 settlement agreement. They want to go forward with their, you
25 know, their trustee -- quasi-trustee argument; I know there's a
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1 motion out there; that's not for today. Let's -- I think our
2 order's appropriate and reasonable. Let's get the examination
3 going, let's keep it on a short track, let's answer the three
4 relevant questions, and let's get on with this case. Thank
5 you, Your Honor.
6 MR. JOHNSON: Good morning, Your Honor. Robert
7 Johnson from Akin Gump, on behalf of the official committee of
8 unsecured creditors.
9 To begin, Your Honor, I'd like to speak about the
10 context overall of where we find ourselves today, and for this
11 purpose I have a demonstrative. May I approach to put my
12 demonstrate up on the easel?
13 THE COURT: Sure.
14 (Pause)
15 MR. JOHNSON: We've already handed out a few copies,
16 and there should be a copy on the bench for Your Honor, and we
17 have additional copies for everyone else here.
18 What we've represented on this demonstrative, Your
19 Honor, is the capital structure of Washington Mutual. And in
20 the blue boxes up at the top, we have the general unsecured
21 creditor pool, which is pari passu with four tranches of funded
22 debt: first the senior debt; then the senior subordinated
23 debt; then the CCB guarantees; and then the peers, and the
24 peers are the body that we've been describing as the junior
25 creditors. Then down toward the bottom of the chart, we're
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1 showing the preferred equity in an amount of 7.5 billion
2 dollars, and the common equity which last time I checked had a
3 market cap of 310 million.
4 Let's go back up to the blue boxes for a moment. I'd
5 like to show where we are currently with respect to the funded
6 debt. with respect to the seniors, we're showing a principal
7 amount, and the two numbers that are in the top line are
8 showing the principal amount and the post-petition interest.
9 And in the disclosure statement as filed, the debtors had said
10 in Exhibit C to the disclosure statement the principal amount
11 was agreed to be 4,132,000,000, and post-petition interest was
12 to be 314,000,000. Now, that was based on an assumption that a
13 large chunk of money would be available to pay the seniors by
14 September 30 of this year. And now that it appears likely that
15 we're going to be pushing back confirmation, the debtors have
16 informed us they're going to be revising the disclosure
17 statement to show a further accrual of interest to the seniors.
18 The number I saw this morning was 350- for the total rather
19 than 314-, although I actually think it may be closer to 360-i
20 we're going to have to check with our financial advisors. But
21 in any case, the further accrual of interest is going to be
22 causing further interest for the seniors, to which they're
23 contractually entitled.
24 The amounts that are shown for the tiers below are
25 calculated as of December 31, because it was predicted that
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1 there would be this substantial amount of money, that would be
2 able to be paid upon the effective date, toward the seniors,
3 but then that the remainder would trickle out later. So a
4 calculation date was used of December 31.
5 So the amount for the general unsecured creditor pool
6 is still estimated at 375,000,000, as shown on my
7 demonstrative. And the senior subordinated class is still
8 shown as the principal amount of 1,666,000,000, and then also
9 an accrual of post-petition interest of 257,000,000. Then we
10 have the class of the CCBs, with a principal amount of
11 70,000,000 and post-petition interest of 8,000,000.
12 And then we have the peers. Now, what I've shown here
13 on the peers is a principal amount of 789,000,000, plus an
14 accrual of interest of 159,000,000, for a total of 949,000,000.
15 But as of the time of the filing of the latest disclosure
16 statement with the fifth amended plan, the amount that was
17 shown as a recovery in Exhibit C to the disclosure statement
18 was only 697,000,000, and that was going to be 88 percent.
19 Now, already today we've learned that with the further
20 delay that's happened with the idea now that we potentially are
21 projecting a payout at December 31, that number is going to be
22 revised downward. There's another factor that's also going to
23 be disclosed in the disclosure statement, and that is that
24 Blackstone has revised downward its valuation for the
25 reorganized debtors. And so that's going to be a further hit
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1 to the estate.
2 What this is going to result in now is that the
3 projected recovery for the peers is 629,000,000. So we've gone
4 now down to 80 percent. So the peers have gone from 88 percent
5 to 80 percent. And if we were to draw a line in this capital
6 structure as to where we are today, there would be a line there
7 close to the bottom of the peers box, and that would show where
8 we are today.
9 Now, let's look at the rest of the context of what's
10 in the demonstratives. As I said before, we are showing the
11 preferred equity at the bottom and the common equity below
12 that. But there's this big cloud in the middle, and I've
13 represented it as an orange cloud, and it's a cloud because it
14 has fuzzy edges. There's a lot there that is still uncertain
15 today. There are unliquidated claims. There are also claims
16 of creditors that are to be subordinated under Section 510(b)
17 of the Bankruptcy Code. And of these creditors that are to be
18 subordinated, for some of them we have stipulations as to
19 subordination, but we still don't have a stipulated or
20 determined amount. So some of the things that are going into
21 this group are identified over on the right in the orange
22 section. They're litigated claims.
23 There's also a huge amount of securities fraud
24 plaintiffs, and some of these claims are very large. The MARTA
25 claim alone has a stated proof-of-claim amount in excess of
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1 thirty-nine billion dollars. Now, the debtors have been
2 working with MARTA with respect to a stipulation regarding
3 510(b), but it's an unliquidated claim and it could be very,
4 very large.
5 We also have Tranquility and Principal Financial,
6 which are some large claims that have been the subject of some
7 litigation and contested claim procedures. And Tranquility --
8 the amount in question I think is now going to be around forty-
9 nine million, but that's -- it's an arranged -- it's in
10 negotiation; I'm not sure where it's going to end up.
11 The underwriters' claims, this is underwriters'
12 indemnities claims with respect to underwriters' indemnity for
13 bond issuances. And so we contend that their claims should be
14 subordinated under 510(b), but we know that the range of what
15 they're looking for at this point is between ten and thirteen
16 million.
17 And then of course there are the WMB bondholders, and
18 they're in a separate class altogether because they have their
19 own vehicle to seek their own recovery through the WMB
20 receivership. But this is the claim that they have made
21 against the WMI estate. And here too we contend that those
22 claims should be subordinated under 510(b), but of course
23 they're undetermined at this point.
24 So the context that I'm trying to illustrate here,
25 Your Honor, is that there's a very large and undetermined cloud
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1 at this time in between the funded debt, the general unsecured
2 creditors at the top of the capital structure, and the
3 preferred equity and the common at the bottom.
4 Now, why do I highlight this? It's because, Your
5 Honor, I believe it's very important as we approach the
6 examiner decision to keep it in perspective and to make sure
7 that we don't lose sight of the timing. As time is going by,
8 we believe that the number that shows how much is going to be
9 available to pay the creditors and the other stakeholders of
10 this estate -- that number is likely to go farther up the chart
11 to a lower number rather than flowing downward.
12 Now, I recognize that the equity committee's position
13 is that if we start allover again and if we sue JPMorgan,
14 maybe we can recover perhaps, Mr. Nelson said, as much as
15 thirty billion. Frankly, I don't think that's realistic. And
16 I had explained in May when we were opposing the examiner
17 motion the first time, all of the work that we had done, all
18 the investigation that the creditors' committee had done as to
19 why we believe that this was an appropriate settlement and the
20 work that we had done to investigate the causes of action, to
21 investigate the assets, and we stand by that work. And that
22 work is going to be available to the examiner so the examiner
23 will be able to hit the ground running. That's all the more
24 reason why we have to keep any examiner to a short time frame.
25 We support the debtors' position with respect to
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1 seventy-five days. And I understand the comments of Mr.
2 Califano from the -- on behalf of the FDIC and his seeking an
3 even shorter time frame. By all means, we could live with a
4 shorter time frame. But we do support the debtors' position
5 that seventy-five days would be an appropriate amount of time.
6 I would also like to speak with respect to the scope,
7 the anticipated scope. And again Mr. Califano's words
8 resonated with me, because I do think that the proper focus of
9 this should be very much on what the debtors did and whether
10 there was any collusion, whether there were any conflicts of
11 interest that improperly tainted the process, and whether there
12 was an adequate exercise of business judgment.
13 But I recognize also that in the context of what we've
14 done here and in all the negotiations that we've had, that in
15 looking at the business judgment of the debtors in determining
16 whether or not to accept this settlement agreement, they will
17 necessarily have to look at those underlying assets and those
18 underlying causes of action. So I recognize that, once the
19 examiner starts going over that threshold into the merits of
20 the assets and the causes of action, that there will have to be
21 some examination. And so I believe that the creditors'
22 committee goes a little farther than the FDIC would. And we do
23 think it would be appropriate for the examiner to look at the
24 assets and the causes of action.
25 Your Honor, what we have done is we have prepared a
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1 middle ground, what I would contend to be a middle ground. And
2 due to the lateness of the filing by the equity committee
3 yesterday, the FDIC yesterday, negotiations that still happened
4 and working with our committee, we hadn't filed it yet. But we
5 have here today, Your Honor, a proposed order. And what I'd
6 like to do is talk about the proposed scope. The proposed
7 scope that we have in our order that we've worked out says the
8 followingi it's fairly short: "The Examiner is directed to
9 examine", and the defined term here, "(the 'Investigation')
10 (a): the claims and a~sets asserted to be property of the
11 Debtors' estates that are proposed to be conveyed, released or
12 otherwise compromised and settled under the Plan and Settlement
13 Agreement, including all Released Claims, as defined in the
14 Settlement Agreement, and the claims and defenses of third
15 parties thereto," and we define that as the "Settlement
16 Component".
17 Moving on, the next step is part (b), and that would
18 be "such other claims and causes of action which shall be
19 retained by the Debtors, and the proceeds thereof, if any,
20 distributed to creditors and equity interest holders pursuant
21 to the Plan, and the claims and defenses of third parties
22 thereto," and we've defined that as the "Retained Asset
23 Component" .
24 And one final clause: "provided, however, that the
25 foregoing is without prejudice to the Court to modify the
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1 foregoing scope of the investigation in the event that the
2 Court otherwise deems appropriate."
3 Your Honor, we think that this would be an appropriate
4 scope for the examiner. We do think that really the most
5 important aspect is what did the debtors do in these issues
6 that we've highlighted of whether there was any collusion,
7 whether there were conflicts of interest that were
8 inappropriate, whether there was an exercise of business
9 judgment. But then if we do start moving into the assets and
10 the causes of action, what is most important is what is in our
11 clause (a), and that is, what is to be comprised, what is to be
12 settled, what is to be conveyed.
13 We also have in there the part (b) of what is to be
14 retained, and that is because in negotiations that we had with
15 all of the settling parties, with the equity committee last
16 week, with the FDIC, we did talk a great deal about the concept
17 of the retained assets. Now, it's my position, Your Honor,
18 that the examiner doesn't need to do much with the retained
19 assets other than say the assets are retained and therefore the
20 liquidating trust can go ahead and pursue them. They will
21 still be there; they can be carried through. But I understand
22 that the equity committee is very interested in having a
23 neutral third party do an investigation of those retained
24 assets. And if that's what they'd like, then that's going to
25 be fine with us as well. So in our proposed middle ground we
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1 do have this clause (b) with respect to the retained assets
2 component.
3 However, it's very important not to lose sight of the
4 timing, again. And so what we've built into this order as well
5 is a mechanism where the report of the examiner would be
6 divided into two parts, or it could come in two chapters: The
7 first would be the issues that are necessary on the settled
8 assets component for purposes of voting under the plan, and
9 then we provided in our proposed time frame that three weeks
10 later the examiner could produce the second chapter of the
11 report on the retained assets, so that the examiner would have
12 a little bit more time to work on the retained assets after
13 getting the part finished on the settled assets.
14 So, Your Honor, if I may approach, I'd like to offer
15 up the proposed agreed order that the creditors' committee
16 would like to offer, and I have copies available for everyone
17 here.
18 THE COURT: You may.
19 (Pause)
20 MR. JOHNSON: Your Honor, that concludes my comments
21 on behalf of the creditors' committee at this point. Thank
22 you.
23 THE COURT: Thank you.
24 MR. LEVINE: Good morning, Your Honor. steven Levin,
25 Brown Rudnick LLP, for the ad hoc group of trust-preferred
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1 securities.
2 I'm here because of my partner's vacation schedule and
3 the case of Mr. Stark, a missed airplane that unfortunately
4 stranded him on a Caribbean island, but that's another story.
5 THE COURT: That's a shame.
6 MR. LEVINE: I personally would prefer to be in
7 Wilmington, but I'm strange that way.
8 I rise also both to set forth what we believe is a
9 middle ground -- we think it's somewhat closer to the true
10 middle than what the creditors' committee proposed, because we
11 think we're situated somewhat closer to the true middle of the
12 capital structure than the creditors' committee is-- and also
13 to relay to the Court some particular concerns we have about
14 overall timing as it relates to our adversary proceeding.
15 Your Honor, we believe that both sides to this dispute
16 are getting somewhat ahead of themselves. The debtors, the
17 FDIC, to a lesser extent the creditors' committee, are
18 basically saying what I understand to be something similar to
19 what they've said since the beginning of the plan process,
20 which is 'You don't really need to investigate this stuff.
21 We've done it ourselves. Trust us. But if you really want to
22 appoint an examiner, all they have to do is talk to us a little
23 bit and he'll come back and report that, you know, under the
24 very loose standards for a settlement here, everything's okay.'
25 Given the allegations of conflicts, the amount of dollars
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1 involved, the public interest involved, we think that a fuller
2 and fairer investigation is warranted.
3 On the other hand, we don't think the type of open-
4 ended investigation that the equity committee has proposed is
5 necessarily the case here. And we would be supportive of a
6 dual-track system, but we think we sort of have to slow down
7 and take this one step at a time. Part of the problem, as we
8 perceive it, has been, in the rush to get this plan confirmed
9 with artificial settlement deadline after artificial settlement
10 deadline, the fundamentals and the right way to get this done
11 have been ignored.
12 So what we would suggest is that the Court go ahead
13 and appoint the examiner. We don't -- although we haven't read
14 it, from quickly listening to Mr. Johnson's presentation, I
15 don't know that we disagree with the scope suggested. You
16 know, certainly it has to go beyond what the debtor did and
17 look at the underlying claims and causes of action and the
18 assets or whether this settlement is fair.
19 So the step one is get the examiner in place to find
20 whatever scope the Court determines in its discretion is
21 appropriate. However, until the examiner has a sense of what
22 the lay of the land is, you know, has had an opportunity to
23 look at what the database is, talk to the relevant parties,
24 it's really premature to put this on a confirmation process.
25 We're optimistic that if an examiner'S appointed, say, this
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1 week, that within a short period of time, say, the next omnibus
2 hearing, the examiner and the other parties can weigh in on
3 what is a sensible rational confirmation schedule. And it
4 still may be possible to do a dual track where the examiner
5 completes his work and we have confirmation by the end of the
6 year.
7 I haven't heard any particular reasons, other than
8 what the Court already knows about accrual of interest, as to
9 why this has to be done now. The Court is used to hearing lots
10 of parties saying that awful things are going to happen if it
11 doesn't act by a certain time, and somehow or other those
12 deadlines come and go.
13 In terms of setting the time frame, we want to remind
14 the Court that our group has some particular concerns. As the
15 Court knows, our clients, who hold the trust-preferred
16 securities, have filed an adversary proceeding in which they
17 allege that there are four billion dollars in assets that the
18 debtors propose to give to JPMorgan that aren't really theirs
19 to give. You know, so in some sense it's an easy settlement
20 because they're using other people's money and assets to
21 settle.
22 We also have raised some direct claims against
23 JPMorgan and other defendants, including some nondebtor
24 subsidiaries. In our view, those claims can't be settled since
25 they belong to our clients directly or they cast -- raise
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1 questions about the ownership of underlying estate assets,
2 can't be settled under a 9019 settlement or an 1123 settlement.
3 So that issue has to be resolved as part of confirmation.
4 Since we first became involved in the case, we've been
5 involved in a dispute with the debtors -- what I understand is
6 later in the agenda, and my partner Mr. Stoll will talk
7 about -- to gain access to underlying documentation. And
8 there's a dispute about the scope of the NDA. We really want
9 to make sure that, given that our issues, in our view, in our
10 adversary has to be resolved by confirmation, that when and if
11 the Court sets a confirmation schedule, our discovery and
12 dispositive motions are built into that schedule so that we can
13 arrive here one way or another either prepared -- if some of
14 the defendants decide that they want to file dispositive
15 motions and motions to dismiss, those can be heard and, at the
16 same time, we can simultaneously pursue discovery so that when
17 the confirmation hearing starts, we're in a position to resolve
18 and adjudicate those issues which are necessary for the plan to
19 be confirmed or not to be confirmed.
20 Since the last hearing, we've tried to be
21 constructive. We made several suggestions which I guess have
22 kind of loosely been adopted in some of the parties'
23 suggestions today. But, you know, we've had trouble getting
24 some traction, even simple things like being allowed
25 included in parties that are included in the process for
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1 selecting and defining the scope of the examiner. We haven't
2 been able to get those types of consultation rights in the
3 order.
4 Again, while we believe a dual track between a
5 confirmation and examiner can work, we're very skeptical about
6 the parties here. And we think it's incumbent upon the Court
7 to be extremely clear and allow no wiggle room for the debtors
8 or any of the other parties to misinterpret what the examiner's
9 supposed to do and how the confirmation schedules have to work
10 through some sort of creative interpretation.
11 Again, we keep -- it's my first time here, but my
12 understanding is a lot of these questions keep coming back
13 again. And we leave the -- my partners have left the courtroom
14 with what they felt was a clear understanding of what the Court
15 wanted, and heard something very different from the other
16 parties-in-interest.
17 So, again, what we would suggest is go ahead, appoint
18 the examiner, give him the scope that you believe is
19 appropriate, probably something consistent with the committee's
20 scope; let the examiner find out what's out there; come back
21 very quickly; and then we can talk about a schedule for dual
22 track. But when you build that schedule, we need to make sure
23 that we get discovery and build the schedule such that our
24 adversary proceeding, which goes to the fundamental question of
25 ownership of one of the key elements of the settlement that has
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1 been given up, all of that can get done by confirmation. Thank
2 you, Your Honor.
3 MR. STEINBERG: Good morning, Your Honor. Arthur
4 Steinberg, King & Spalding, on behalf of the litigation
5 tracking warrant holders, or at least my clients who are
6 litigation tracking warrant holders.
7 Your Honor, I agree with the debtor that the Court
8 should set the scope of what the examiner should do. And I am
9 not here today like everyone else before me to try to lobby
10 what that scope is. But I will point out that until Your Honor
11 sets the scope, any discussion about the timing can't be an
12 intelligent discussion, because the scope defines how quickly
13 someone could accomplish that task. So the notion that they're
14 asking Your Honor to set the scope but somehow they can
15 magically divine that seventy-five days or less than seventy-
16 five days makes any sense at all is, I think, nonsensical.
17 So I think the proper way to go forward here is that
18 Your Honor sets the scope. So much of the timing, as argued
19 here, is predicated on the level of cooperation and the status
20 of the records, and an examiner will not be able to know that
21 until he gets at least an understanding of that, and then he
22 can make a recommendation, or she could make a recommendation,
23 to the Court, and the Court can then dictate what it thinks is
24 appropriate for going forward.
25 I do object to any kind of notion of a parallel track
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1 as a condition for an examiner, and I do not think the Court
2 should parallel-track this thing until the examiner is
3 appointed and a timing is actually set, because if the timing
4 is such that it will be as short as seventy-five or ninety
5 days, then a parallel track does not make any sense at all,
6 because if the examiner comes up with a report which is
7 anything other than a blessing of the global settlement, then
8 the parties should have an opportunity to review it, understand
9 it in the context of a disclosure statement, because, as is
10 argued, the global settlement is the heart of the plan. And
11 therefore I think the notion of a parallel track doesn't make
12 sense at least until you've heard from the examiner.
13 And, finally, Your Honor, you've heard the discussion,
14 and I do not think it should be cast aside with the back of a
15 hand, that the global settlement itself has a termination date
16 of August 30th or August 31st of this year. I do not think we
17 should do anything unless there's an extension of that time
18 sufficient so that the examiner can do his job. It is
19 nonsensical to me that we would go through this entire process
20 and expend the money and let the parties to the settlement
21 decide at any particular moment that they want to pull the
22 plug. They should either decide that they're in it or not in
23 it.
24 THE COURT: Thank you.
25 MR. CURCHAK: Good morning, Your Honor. Walter
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1 Curchak of Loeb & Loeb. I appear on behalf of Wells Fargo
2 National Bank, which is the trustee for the junior subordinated
3 debentures, which are referred to as the "peers" up there.
4 And I rise really to make three brief points. We
5 started in this case looking up at a lot of debt over us. It's
6 been a hard-fought case. It's been a long case by today's
7 standards to get to this point. And the settlement was
8 achievedi it appeared to be providing recovery for our class.
9 And now as I hear all these arguments and I see all these
10 lawyers billing on the estate's time, I see that recovery
11 sinking. And there are a few points I'd like to make to the
12 Court to consider in your decision as to how to set the scope,
13 and how to set the duration more importantly, of this
14 examination.
15 I disagree entirely with Mr. S~einberg's comments. I
16 think the time frame is very important here, whatever the scope
17 is. And the examiner needs to understand the constraints
18 within which he or she will have to work.
19 First, Your Honor, you've seen many people holding the
20 debt instruments in this case appear in this courti many have
21 filed 2019 statements. I just want to point out that a lot of
22 the holders of the peers are the same kind of ordinary
23 citizens, retirees on fixed incomes, that you've heard from
24 among the shareholder group. They bought these peers in units
25 of fifty dollars. These are not large hedge funds. They're
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1 real people looking to get some recovery here as well.
2 Secondly, as you've heard many people say, because of
3 the subordination issues here, every day that passes, the
4 recovery of the peers goes down. We are contractually
5 subordinated. Whatever ends up happening here, whatever we get
6 will go to the senior bondholders to pay their interest, which
7 continues to accrue. And obviously everybody will be behind
8 the administrative expenses of the estate.
9 So just in the last -- since the last hearing,
10 literally our recoveries -- our projected recoveries have sunk
11 by almost ten percent. We believe that they're going to be
12 going down, at the current burn rate, at numbers that, you
13 know, will be paralleling that pretty much as this case drags
14 on.
15 The last point I want to make is that the parties that
16 are lobbying for the unlimited examination here are playing
17 with our money, and that's, I think, something the Court and
18 the examiner will need to bear in mind. Even if the peers
19 holders had a full recovery, there are billions of dollars that
20 have to be adjudicated before anything will find its way down
21 to equity, the so-called cloud creditors, if you will, that the
22 committee refers to in their demonstrative. And as I
23 mentioned, as the latest plan and disclosure statement
24 demonstrates, our recoveries are shrinking every day.
25 So I would simply ask that Your Honor take that into
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1 account in setting a relatively a short time frame for this
2 examination and an appropriate scope, and proceed on the dual
3 track, because there's no reason not to. If the examination
4 comes in and derails the plan, it'll do so. I wouldn't ask and
5 expect Your Honor to permit anything else. But to wait for the
6 examination to go on simply delays unnecessarily and at
7 additional expense the confirmation process which should be
8 proceeding. Thank you, Your Honor.
9 MR. LAURIA: Good morning, Your Honor. Tom Lauria
10 with White & Case. We represent the WMI noteholder group.
11 THE COURT: Yeah.
12 MR. LAURIA: Your Honor, I have a demonstrative as
13 well that I'd like to use for my brief presentation.
14 THE COURT: You may.
15 MR. LAURIA: If I may approach?
16 THE COURT: You may.
17 (Pause)
18 THE COURT: I'll mark this WMI Group 1.
19 MR. LAURIA: Pardon me?
20 THE COURT: I'll mark it WMI Group 1.
21 (WMI noteholder group demonstrative was hereby marked for
22 identification as WMI Group I, as of this date.)
23 MR. LAURIA: Thank you.
24 THE COURT: And I'll mark the capital structure
25 Creditors' Committee 1 just so we have it for the record.
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1 (Creditors' committee capital structure demonstrative was
2 hereby marked for identification as Creditors' Committee 1, as
3 of this date.)
4 MR. JOHNSON: Thank you, Your Honor.
5 MR. LAURIA: I'll go ahead and get started.
6 THE COURT: Yes.
7 MR. LAURIA: Your Honor, I'd like to start out by
8 going back to this Court's ruling on the original examiner
9 request at the conclusion of the hearing on May 5th. At that
10 hearing, I think the Court made four rulings or conclusions --
11 reached four -- five conclusions that I think are particularly
12 relevant today: number one, the Court determined that the
13 request for an examiner at that time was not a tactici number
14 two, the Court indicated that it was not convinced by the
15 argument of the debtors to the creditors' committee that there
16 would be harm from delaYi number three, the Court concluded
17 that the debtor, and this is in the Court's words, had been
18 investigated to death, that there was nothing left to
19 investigate and that an investigation at this point would only
20 go back over things that had already been investigatedi number
21 four, the Court observed that the equity committee was capable
22 of conducting whatever further investigation was requiredi and
23 number five, and I think this is particularly important, the
24 Court observed that the appointment of a third party to conduct
25 an investigation could not be a substitute for the adversarial
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1 process in this Chapter 11 case, that ultimately it was for
2 this Court to decide what were the assets of the estate, what
3 their value is and whether or not the settlement which
4 allocates that value is appropriate and meets the requirements
5 for confirmation.
6 Now coming forward to today, Your Honor, nothing has
7 changed that favors the appointment of an examiner from May
85th. The investigations have all still been conducted. The
9 equity committee still stands capable of conducting an
10 investigation. And in fact the need for the adversarial
11 process ultimately to help this Court reach ultimate
12 conclusions is still the bottom line.
13 There are a couple of things that have changed,
14 however, that I think militate against the appointment of an
15 examiner. Number one, based on a sealed filing that was
16 apparently made by the equity committee last night, which was
17 not served on me but which I am told fundamentally says that it
18 doesn't matter what the examiner does or how long it takes, as
19 long as the equityholders get to have a shareholder vote before
20 the plan comes on for confirmation. In other words, 'We don't
21 actually want to put our money where our mouth is. We don't
22 actually ever want to come forward with evidence at a
23 confirmation hearing. What we want to do is redirect the case.
24 And we want this case to drag out until we've had our
25 opportunity to do so.'
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1 Number two, whereas on May 5th we didn't have a firm
2 deal to put forward a plan, today we do. And so the issue of
3 harm from delay now is, I think, a real one, one that the Court
4 needs to take into consideration. And I think what's been said
5 is that, although there's a deadline in the settlement of
6 August 31st, that deadline likely will be subject to extension,
7 but only, I think, to facilitate getting to a finish line in a
8 reasonable period of time.
9 I don't think the parties have indicated that they are
10 going to be amenable to an open-end extension, and they
11 shouldn't be. A settlement is based on economic principles
12 and, as time passes, those economics change. And what people
13 thought they were buying with the settlement vaporizes as,
14 instead of avoiding litigation, they find themselves enmeshed
15 in litigation. So we do have a settlement on the table that is
16 time-sensitive. And so at some level this becomes an analysis
17 of the old bird in the hand, bird in the bush.
18 Now, the thing I want to point to with respect to this
19 settlement, and I guess I'd ask the Court to look at page 1 of
20 our demonstrative, although everybody says all the time that
21 the senior notes are going to be paid in full in this case so
22 we shouldn't worry and our concerns shouldn't really be heard,
23 in fact every dollar of our recovery is at risk in this case.
24 I've tried to lay that out in the demonstratives so the Court
25 can see. There is not one dollar of the estate's value or cash
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1 that hasn't been challenged by claims and litigation put forth
2 either in this court or in other fora.
3 In other words, the risk here is that, in the absence
4 of a settlement, the estate's recovery maybe doesn't just shift
5 within a small range. It could go to zero. JPM and the FDIC
6 have asserted rights to the deposit; it's four billion dollars
7 at risk right off the top. The tax refunds, as the Court is
8 well aware, both the first and now the second, are both
9 challenged who owns them, what are the claims that follow those
10 tax refunds wherever they go. Even the cash on hand has been
11 challenged by the bank bondholders. In short, we are at risk
12 of a very different outcome in this case if the bird in the
13 hand is surrendered for the proverbial two in the bush.
14 Now, if the Court is so inclined to appoint an
15 examiner, although I think it's dubious at best to say that
16 there's any circumstance that exists today that was not present
17 on May 5th that supports the appointment of an examiner, I
18 think we really need to focus carefully on the dos and the
19 don'ts. The examiner, simply put, should facilitate the plan
20 process. The examiner's role should be to help us get to that
21 end line so that ultimately the Court can make the
22 determinations that it ultimately has to make with respect to
23 the propriety of the settlement and the appropriateness and
24 confirmability of the plan, a determination that should and has
25 to be made on the basis of an evidentiary record, one which I
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1 note is lacking today.
2 The examiner should not be used as a device to disrupt
3 the plan process. And I think this in large part comes down to
4 timing, although I think timing and scope are inextricably
5 locked together. To say that we're only concerned about the
6 timing and the scope can be whatever it is kind of misses
7 reality, because the scope has to be circumscribed in a fashion
8 that permits that scope to be completed within the contemplated
9 time frame.
10 And if the time frame doesn't preserve the settlement,
11 doesn't permit the debtor to put its case on regarding
12 confirmation of the plan, what the examiner will effectively be
13 is a filibuster that prevents the Court from ever getting to
14 consider on the merit, on a record, the propriety of the
15 settlement and the confirmability of the plan.
16 Now, there's a second timing theme going on here that
17 has, I think, been made clear in the filing that has recently
18 been made, and that is the equity committee wants to change the
19 estate representative. The equity committee wants there to be
20 a shareholder vote before the plan comes on for confirmation,
21 so that they can change the board of directors. A board
22 appointed by out-of-the-money shareholders has no reason to go
23 forward with this plan process. This would be obviously a
24 disaster for the creditors, and I think it would defeat the
25 purposes and policies of the Bankruptcy Code by way of end-run.
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1 The Bankruptcy Code recognizes the primacy of creditor
2 interests over those of equity. And if there is in fact. a need
3 to change the estate representative, the Bankruptcy Code
4 provides procedures for doing so and mechanisms for doing so.
5 As Your Honor is aware, we have pending a motion to
6 either appoint a trustee in this case or to convert the case to
7 Chapter 7. Now, we've been carrying that motion in the hopes
8 that this process can congeal in a sensible fashion and move
9 forward to a finish line. But at some point, if in fact the
10 Court believes that we should change the estate representative,
11 it shouldn't be through a shareholder vote to appoint a new
12 board of directors, overrunning the interests of creditors; it
13 should be through the mechanisms provided by the Bankruptcy
14 Code that protects creditor interests, either with an
15 independent trustee in this Chapter 11 case or an independent
16 trustee in a Chapter 7 case.
17 Now, I want to turn to page 3 of our demonstrative
18 it's very similar to the one previously offered by the
19 creditors' committee -- because this helps, in conjunction with
20 page I, to frame the risk and reward here, what's at stake,
21 what the opportunities are. Assuming in a fully contested case
22 that the bank bondholder claims recover zero, assuming that the
23 JPMorgan claims recover zero, assuming that the FDIC claims
24 recover zero, assuming that the 510(b) claims recover zero, and
25 setting aside the trade claims, which could be 3- or 400
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1 million dollars, the hurdle, the hurdle, for the common stock
2 shareholders to recover the first dollar is approximately 15
3 billion dollars.
4 Now, we have a settlement that brings into the estate
5 and makes distributable on the order of six- to seven billion
6 dollars, dependent on certain contingencies, but avoids the
7 possibility of a zero recovery to the estate.
8 Now, Your Honor, I've heard counsel say that these
9 claims that they want to see investigated that should be the
10 basis for delaying this process, that should be the basis for
11 putting at risk this settlement, are worth thirty billion
12 dollars. No evidence has been offered; not one shred of
13 evidence. No support has been offered to the Court or the
14 parties for this claim. In short, no threshold showing has
15 been made; just conjecture. Counsel gets to come up here and
16 say 'We've got thirty billion dollars of claims we want to
17 investigate and protect, and therefore you should put at risk a
18 settlement that provides a tangible recovery of six- to seven
19 billion dollars,' one, as this Court knows, was not easily
20 developed and formulated, one that was difficult, to say the
21 least, and one that may well be fleeting.
22 Your Honor, without crossing the threshold, without
23 making some showing that there's merit to these claims, this
24 process should go forward; the creditors are entitled to that.
25 And the opponents to the plan have their opportunity to prove
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1 all the things they say they're going to prove at a
2 confirmation hearing. That's how it's usually done: The plan
3 comes on for confirmation, the parties make a record, they make
4 their arguments, and then the Court decides if the settlement
5 meets the requirements for approval and if the plan satisfies
6 the requirements for confirmation.
7 What we have here is an attempt, without ever being
8 put to their proof, to throw out the bird in the hand in
9 pursuit of the birds someone thinks may be in the bush but have
10 made no showing of that to be the case.
11 So, Your Honor, putting aside the tactical advantage
12 that the equity committee sees from delay caused by the
13 appointment of an examiner at this stage of the case, there is
14 no legitimate purpose to be served from the appointment of an
15 examiner. Nevertheless, I think, almost out of desperation to
16 appease the objections of the equity committee, the debtor, the
17 creditors' committee and others have said 'Okay, okay, we'll
18 agree to an examiner, but,' and I think this is where I break a
19 bit with the comments made by some of the other parties, 'if an
20 examiner is to be appointed, the examiner's job and the time
21 for the examiner to do that should be framed in a way that
22 permits the process of going to confirmation to move forward in
23 a reasonable fashion and doesn't unreasonably jeopardize a
24 settlement that's going to bring six- to seven billion dollars,
25 distributable, into this estate.' And ultimately it is for
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1 this Court to decide what, if anything, it needs from an
2 examiner to assist it in making the determinations of fact that
3 will be required to either give the plan and the settlement a
4 thumbs-up or a thumbs-down.
5 So we don't agree with the proposed order submitted by
6 the official creditors' committee. We don't think that it's
7 properly focused to insure that an examiner will only help this
8 Court in assessing the issues that need to be addressed in
9 connection with confirmation.
10 Indeed, Your Honor, we think the best test, and
11 ultimately the only real test, of the appropriateness of the
12 settlement is a confirmation hearing where this Court decides,
13 based on everybody's evidence. And let's say that that
14 confirmation hearing is held at the beginning of November as
15 proposed by the debtors, that provides ample time for the
16 litigants to develop their record and to present it to the
17 Court for consideration, at least it would appear so today.
18 Now if we get to November 1st and the Court feels that
19 based on some showing that there's a need for delay, well the
20 Court can always adjust the schedule. But if we don't get
21 started today or soon down that path, we really pu~ at risk
22 this settlement.
23 And so, we go from having a lot of things done, not
24 everything done but a lot of things done, to maybe back to the
25 starting line. And I don't see how that can possibly be
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1 consistent with any of the principals that underlie the
2 Bankruptcy Code.
3 So we would ask that the Court focus on the need to
4 put everybody to their proof. The only way we're going to end
5 this back and forth and colloquy is to create a framework
6 within which a record has to be made. Enough of the promises.
7 Enough of the conjecture. Let's get an evidentiary record and
8 let's let the Court decide whether this settlement should go
9 forward. And if the Court feels that an examiner will help its
10 assessment, then so be it.
11 THE COURT: Thank you.
12 MR. SCHELER: Good morning, Your Honor. Brad Scheler,
13 Fried Frank. Your Honor, my four clients are Appaloosa, Owl
14 Creek, Aurelius and Centerbridge. For this morning I'd like to
15 note that I actually have individuals who work there; their
16 names are Jim Divock, Jed, Jeff, Mark, Dan and another Mark and
17 Dan. I mention them because they're real people, they're real
18 investors, they pay attention carefully to these hearings,
19 they're probably listening as I speak right now, Your Honor.
20 Your Honor, above all else what my clients want, and I
21 think what today is all about, is advancing the process of this
22 Chapter 11 case and insuring that we do so in a way that this
23 Court is fully comfortable and confident in the process.
24 Your Honor, much of what you've heard today falls into
25 two categories, whether on the basis of the settlement you're
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1 in the money or on the basis of the settlement you're out of
2 the money. And before the Court today is not the settlement.
3 Before the Court today is how are we going to move forward with
4 the case.
5 Your Honor, what's ironic to me is that I know that
6 the Court's been actively involved for twenty-two months. I
7 know the Court knows the record is full and complete as anybody
8 in this room and you've repetition of what's gone on before,
9 you've looked at the demonstratives and no one understands
10 better than this court where people sit in the capital
11 structure, how far removed they are. This is all about getting
12 to a point of whether or not there's going to be on the
13 currently proposed plan within the exclusivity period a
14 confirmation and what do we need to do in order to have
15 confirmation, whether or not that settlement will meet the
16 standards of TNT Trailers or otherwise to enable confirmation
17 and whether or not an independent third party needs to
18 participate in that process, Your Honor.
19 Well, all that plays out against the backdrop of the
20 following; any party in interest who's out of the money has the
21 opportunity to come into this Court and say I'd like more. Any
22 party in interest who's out of the money has the opportunity to
23 come into this Court and say I'd like more delay, I'd like more
24 process, I'd like more review.
25 Interestingly, Your Honor, if we went through a
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1 confirmation hearing and you held the parties to the
2 evidentiary requirements that Mr. Lauria just alluded to and
3 you ruled and you authorized and approved the compromise and
4 settlement and you confirmed the plan, what would happen at
5 that point in time, Your Honor, is a confirmation order would
6 be entered and any party aggrieved by the confirmation order at
7 that point would have their remedies and a remedy would be the
8 opportunity to seek review of this Court's ruling on appeal.
9 And, Your Honor, what's most interesting is if they wanted to
10 stay approval of this Court's order pending that appeal, they
11 would have to put up a bond. And the reason for bonding
12 requirements, Your Honor, is so that parties are not able to
13 put other parties' value at risk.
14 Now I know one thing, I'm certain about one thing, I
15 know this Court wants absolute fair, open and complete process
16 but I also know this Court does not want to jeopardize or
17 forfeit value. This is a court of equity. A court of equity
18 does give parties the right to appear and be heard, Your Honor.
19 But what it doesn't do is in the name of fictitious theory or
20 belief theory or real theory to overtake the twenty-two months
21 of hard work that's taken place both inside this courtroom and
22 outside the courtroom, Your Honor.
23 Your Honor, in Chapter 11 processes, particular when
24 there's a finite value, we know right now, under the settlement
25 as proposed, we've heard that there's between six and a half
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1 and seven billion dollars of value that can be obtained on a
2 certain basis. We also know that the equity committee believes
3 that there's upwards of thirty billion dollars of value. I
4 don't think they can bank that thirty billion dollars of value.
5 No one's offering to step into the shoes of the risk that my
6 clients have every day and whether it's that thirty million
7 dollars of monthly costs that's deteriorating, Your Honor, or
8 whether it's the cost of this process.
9 And you know, Your Honor, it's interesting to me,
10 because in all of these Chapter 11 cases we're always worried
11 about costs and expense. Now, Your Honor, this estate has
12 limited resources. It has theoretic resources but it has
13 limited resources. This is an estate that's not being operated
14 by the management that was in place prior to the start of the
15 Chapter 11 case. The management of this company has worked
16 tirelessly. Mr. Christorus (ph.) and his team have worked --
17 put before the parties in interest what they believe is the
18 best possible deal. That deal was not hammered about by them
19 in a vacuum, every party in the case participated in it. The
20 parties in the money -- the parties in the money, Your Honor,
21 participated
22 know - -
23 THE
24 MR.
25 Honor, in the
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in that process. But Your Honor, you do need to
COURT: I'm not considering the
SCHELER: Okay. Your Honor, let
context of what you have before
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settlement today.
me move on. Your
you what you have
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1 is an enormous opportunity to realize value. The question is,
2 how are you going to realize value and how are you going to
3 avoid jeopardizing value?
4 Your Honor, the most important thing that you can do
5 today is set down for a date certain confirmation. You will
6 determine whether the parties go forward with confirmation.
7 You will determine the scope and direction of that confirmation
8 hearing, that will remain with you. But Your Honor, if the
9 main focus of this case an examiner's report, an examiner's
10 process outside the context of going forward with confirmation,
11 you put the estate at enormous risk.
12 Your Honor, a government agency in terms of defending
13 itself has unlimited exchequer. Your Honor, a major financial
14 institution in terms of defending itself has almost unlimited
15 exchequer. This estate and its creditors have finite
16 exchequer. And Your Honor, the question is how are we going to
17 use that finite exchequer and are we going to work with
18 forfeiture?
19 Your Honor, you've heard from the parties, the
20 overwhelming number of parties in this case have agreed that if
21 it's important to the Court there should be examiner. The
22 parties have agreed, save the equity committee, that we should
23 set down -- and a couple of others, that we should set down for
24
25
a hearing confirmation. We should approve the disclosure
statement.
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Your Honor, you should reserve just as you're going
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1 to reserve for a later date discussion on the settlement, you
2 should reserve for a later date whether or not that hearing on
3 confirmation should be adjourned or go forward.
4 Your Honor, you should keep uppermost in mind that the
5 aggrieved parties, if they were aggrieved in the context of a
6 final order this Court would have bonding requirements. And
7 Your Honor, my hope and my clients' hope is that you will not
8 forget that it is their value that is being dissipated by this
9 process.
10 Thank you, Your Honor.
11 THE COURT: Thank you.
12 MR. MCMAHON: Your Honor, good morning. Joseph
13 McMahon for the acting United States Trustee, Jane Leamy, with
14 our office is also with me.
15 Your Honor has heard the talk about the need for
16 balance from the debtors and in that regard I want to start by
17 recalling one argument that we advanced at the initial examiner
18 hearing which is that the entire purpose of the examiner's
19 statute is that it was a substitute for requiring a trustee
20 appointment in each and every Chapter 11 case.
21 The entire purpose of it was to protect Mr. Nelson's
22 constituency. So while we have been, I guess, overwhelmed with
23 information and viewpoints today, in color and otherwise, with
24 respect to how things should proceed, I think that central
25 point has to be emphasized. The examiner is about protecting
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1 equity holders.
2 With respect to timing, Mr. Kirpalani referenced in
3 passing and I'm sure it wasn't designed as a criticism of how
4 the process is played out, but I do want to note that things do
5 happen in Chapter 11 cases. Tax carry-back legislation is
6 passed. The debtors do find out that they're entitled to 2.6
7 billion dollars worth of tax attributes; an equity committee is
8 formed; claims are settled, a settlement is announced and the
9 equity committee, after duly appointed in this case, moved
10 timely for appointment of an examiner. That's what the Court
11 found at the prior hearing.
12 Let me address the three points that are being
13 discussed this morning that are relevant to getting this
14 process on track. The key point of contention, Your Honor,
15 seems to be whether the purpose of the examiner is to
16 effectively perform a function of the Court which is to
17 determine or have its purpose limited to whether or not the
18 settlement is reasonable. And that's not where we're at as an
19 office, Your Honor. You have, I hope, seen the proposed scope
20 that's reflected in the equity committee's submission of
21 yesterday. You have heard Mr. Johnson describe what the
22 creditors' committee's willing to consent to and I'll tell you
23 that, just speaking generally, I don't think there's that much
24 difference between where our office is at and where the
25 creditors' committee and the equity committee is at. There may
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1 be some tweaking of language but as a substantive matter I
2 think all three of those parties are at least generally
3 thinking along the same lines as to what the proposed scope of
4 examination should be. So again, the focus is on the claims
5 and causes of action rather than performing a quasi judicial
6 function.
7 Second, timing. I believe that the equity committee's
8 initial proposal was for at least a preliminary report within
9 150 days. That's where the initial motion got us started.
10 Your Honor would note that at least our proposal, I think it's
11 supported by the equity committee and reflected in its proposed
12 form of order, is that a preliminary report be filed within 120
13 days.
14 I don't think, frankly, given the nature of the
15 investigations that have been carried out to date, that anyone
16 thinks that an examination, a principal examination of the
17 issues before the Court could be completed within sixty to
18 seventy-five days.
19 Third parallel track, the crux of that issue Your
20 Honor is really a balancing of various costs. Your Honor
21 observed that the examination at the last hearing would not be
22 a substitute for the adversary process. That's true. That
23 being said, Your Honor, the way that matters are arranged
24 within Chapter 11 cases, whether or not parties stand down for
25 a period of time while an examination proceeds, can affect the
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1 cost issue.
2 In the Tribune cases Your Honor was seeing a situation
3 where there is an examination proceeding and parties are
4 conducting discovery at the same time. That's one way of
5 addressing it. With that being said, it's really an issue,
6 Your Honor, that all things considered we believe to be left
7 for after we get the examiner appointed and on board.
8 I think really what it comes down to for today, Your
9 Honor, is that the equity committee has put before the Court an
10 order that we're substantively we're in agreement with as a
11 general matter, that provides for the appointment of an
12 examiner just to get the person on board so we can get the
13 process started. And some of these collateral issues with
14 respect to the process going forward, I think could be reserved
15 for a date where the examiner is here before the Court to speak
16 to the interests of the examination, vis-a-vis the issues that
17 the parties are raising.
18 Thank you.
19 MR. NELSON: Your Honor, just a few brief points.
20 First, the only thing I'll say with respect to some of the
21 arguments, with respect to the creditors' committee and the
22 noteholders is that they appear to be relitigating solvency and
23 previewing confirmation and really trying to disband the equity
24 committee which I think we've already crossed. And I think the
25 issue here is what should happen.
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1 The noteholders asked how do we get this thirty
2 billion dollar figure, it's in our briefing, which is that just
3 in the first quarter of 2009, with respect to one piece of
4 Washington Mutual's assets, JPMorgan declared a twenty-nine
5 billion dollar gain. So that's for assets they bought for 1.8
6 billion dollars.
7 Whether that is right, that's why we're here. I do
8 think when Mr. Johnson read his proposal, which was the first
9 time we'd heard of it, it actually sounded quite similar to
10 what we had submitted as well. And with the permission of Mr.
11 Johnson, with the permission of the debtors and with the
12 permission of my client and I believe the u.S. Trustee, I
13 actually think, Your Honor, we do have an agreement on the
14 proposed scope of the order with some slight redlines from what
15 Mr. Johnson read to the Court. If I may approach it's exactly
16 what I'm going to show you.
17 THE COURT: All right. You've marked up the
18 committee's proposal?
19 MR. NELSON: Yes, Your Honor.
20 THE COURT: All right.
21 (Pause)
22 MR. NELSON: And obviously it's just with respect to
23 that paragraph 2 on scope, but as we'll see Your Honor it's
24 quite limited and mostly just word changing, changing
25 examination to investigation. Changing assets asserted to be
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1 property to assets that may be property of the estate and
2 adding an "and/or" to the clause and the word assets to what
3 would be the retained asset component. And I believe that with
4 this, at least on scope, there is agreement on where we are on
5 what the examiner should be investigating.
6 The noteholders brought up this idea that we are
7 trying to delay and delay and delay and used the shareholder
8 action as a reason for why that is true. I can't -- first of
9 all, as I said before, we have every interest in getting this
10 done expeditiously. We also emphasize that if there can be at
11 least monthly status updates with the examiner, that would be
12 helpful so that we can make sure that things are proceeding on
13 track.
14 With respect to the shareholder issue, we just are of
15 completely different opinions. The reason why it still has not
16 been decided is because we have seen delay and delay and delay
17 from the debtors on this point. We have asked Your Honor for a
18 hearing no later than August 10th where we can decide this
19 issue of whether a shareholder meeting will be decided and in
20 our mind that issue can be resolved well in advance of plan
21 confirmation, well in advance even of the examiner report
22 should there not be any appeals.
23 But we also think that there should be started a
24 process for having a new board in place that will be able to
25 look at what the examiner finds. Now, if we're not proceeding
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1 to have the disclosure statement done and parallel, we're at
2 this Court's pleasure. But we do believe strongly that there
3 should be a new board in place well in advance of plan
4 confirmation. We think from a timing perspective it is
5 actually faster to go forward now with hearing whether there
6 should be a new board.
7 I can get into some of the back and forth, Your Honor,
8 if you wish about what there's been done to delay but frankly I
9 think the point here is that I think from our papers you've
10 seen we have tried everything possible to have a quick hearing
11 on the shareholder issue. We've gotten and been met with
12 delays. We've offered depositions, we've offered documents and
13 we don't even have agreement from the debtors that they will
14 agree to their own confidentiality order.
15 So if there is any more discovery to be done, which we
16 think is a straightforward issue but to the extent that there
17 needs to be or the debtors want to take discovery on this abuse
18 issue, we're happy. We have nothing to hide and we just
19 suggest that it be done quickly so that we can get this issue
20 resolved.
21 Finally, Your Honor, we have pushed for an examiner
22 here. Not because we know the results of this investigation or
23 what it's going to be, we do not. We are aware of the risk
24 that at the end of the day the examiner might issue a report
25 favorable to the debtors and JPMorgan. But we also believe
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1 that it is vital for there to be an accounting of the value of
2 the assets of the estate. That's what, actually, I think the
3 proposed scope of the order provides and we thus urge the Court
4 to adopt that and to set a timeframe that is consistent with
5 allowing the examiner to do its work.
6 Thank you.
7 MR. CALIFANO: Your Honor, if I may, I'll be very
8 brief.
9 I'm just -- I'm compelled to respond to something that
10 Mr. Nelson just said because I think it bears out my point that
11 I made before, that they're acting in complete disregard of the
12 law.
13 Now, when he was confronted with saying where does
14 your thirty billion dollar claim come from, what'd he say? He
15 didn't bring forth a legal theory that they've investigated.
16 He didn't bring forth a legal theory that everybody else has
17 ignored. No. He said we looked at JPMorgan Chase's results
18 and they had a twenty-nine billion dollar gain. So from that
19 we construe a thirty billion dollar claim. That is ridiculous,
20 Your Honor. And the reason why it's ridiculous, and we put
21 forth in our papers, is that that doesn't create the basis for
22 a cognizable claim under law. That very claim is barred and
23 we've got the case law in our brief and that's what I've been
24 trying to get at and that's the point I've been trying to make.
25 And the other thing, Your Honor, if there was that
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1 value in the bank that wasn't paid for and he's setting aside,
2 forgetting about the fact that JPMorgan Chase assumed sixty
3 billion dollars in deposit at probably one of the worst weeks
4 in this country's economic history since the Great Depression,
5 he's ignoring that, there's sixty billion dollars of deposits
6 being assumed. But what he conveniently forgets is that
7 fourteen some odd billion of bank bondholders would have a
8 claim to that. But I think we need to bear in mind, Your
9 Honor, that what he wants to create here is a wholesale
10 investigation with the attendant delay and risk to this estate
11 for a claim that is a fantasy and has no legal basis and is
12 barred by FIRREA. And if we could just -- I mean, we could
13 brief that in a week and their whole reason for existence would
14 disappear.
15 Thank you, Your Honor.
16 THE COURT: I'm going to give you the opportunity to
17 do that with an examiner, but let me just make my rulingi I
18 think I've heard enough.
19 It seems that all parties are now on board that the
20 appointment of an examiner may help the process here, except
21 the WMI Noteholders' Group, which suggests that nothing has
22 changed since my original denial of the shareholders' motion
23 for an examiner in May. But I disagree with that analysis, at
24 least three of the factors on which I relied turn out not to be
25 true at this juncture.
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1 I had found the debtor had been investigated to death.
2 The equity committee would be able to conduct any investigation
3 that was appropriate and that an examiner was not a good
4 substitute for the litigation process. Quite frankly, I found
5 that the litigation process is not adequate in this case.
6 There have been inordinate delays and impediments to discovery
7 by all of the parties who have a stake in this case in
8 connection with the confirmation process and that has convinced
9 me that an examiner is necessary. Both to reduce the cost of
10 litigation and to assure that all parties have a forum through
11 the examiner of consideration their positions, not simply on
12 the merits of the global settlement but on really the value of
13 the debtor's assets, both those being settled and those left
14 behind and the appropriate distribution of those assets under
15 any plan.
16 I think I made it clear that I think I am not in a
17 position to deal with confirmation at this juncture, given the
18 inability of the parties to fully investigate or consider all
19 of the claims. I'm not in a position to decide the
20 reasonableness of the settlement at this point without some
21 assistance and I believe an examiner is a good way to go, with
22 the caveat that I agree that this process has to be controlled,
23 the examiner cannot be given carte blanche and no deadline
24 within which to conduct an investigation. This is no
25 substitute for a congressional investigation.
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1 I will appoint an examiner. We'll do a dual track
2 with a plan process.
3 There seems to be some agreement between the equity
4 committee or of the equity committee with respect to the scope
5 articulated by the committee, creditors' committee. There has
6 been some argument that the scope should be limited only to the
7 merits of the settlement, global settlement agreement and that
8 no looking behind the scenes as to what the debtor may not have
9 considered as appropriate. I'm not, at this point, willing to
10 agree with that limitation but I will do the following. I will
11 give a short time for an examiner to be named and have
12 preliminary meetings with all of the interested parties,
13 specifically the debtor, the FDIC, JPMorgan, the equity
14 committee, the creditors' committee, if I didn't mention them.
15 And I want a preliminary work plan prepared by the examiner and
16 presented to the Court before the August 10th hearing.
17 I will not require that it be a week but if it can be
18 filed by August 6th so that all parties can comment on it by
19 the August 10th hearing.
20 Secondly, I will direct the examiner to commence
21 immediately, even before the August 10th hearing, a review of
22 the documents that the debtors and the committee have assembled
23 in the discovery depository.
24 I will give the FDIC the opportunity to present its
25 legal arguments to the examiner immediately as to the legal
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1 impediments to any claims that the estate may have against it
2 or any other parties that are governed by the settlement. And
3 I will allow the other parties, to the extent they already have
4 prepared legal memoranda or attorney work product, will direct
5 those parties to present them to the examiner. If they're not
6 presented to the examiner, that will play in my consideration
7 later as to what additional discovery or investigation need be
8 done by the examiner. But I strongly urge the parties to
9 consensually provide sufficient information to the examiner to
10 convince them of their belief that any further investigation is
11 not warranted.
12 I would like a preliminary report by the examiner by
13 the September 7th omnibus hearing, regarding this -- what it
14 has done to date; he or she has done to date and what more
15 needs to be done to complete the legal analysis and review of
16 the documents that have been produced. If I am convinced that
17 no additional discovery is needed, I would order a report by
18 October 8th. If I believe that additional discovery or review
19 of documents and legal analysis is warranted, that deadline may
20 push out.
21 On the dual track I will consider, at the September 7
22 hearing, the disclosure statement. I will not consider any
23 additional revisions. If the debtor has no further resolution
24 of issues with the parties I will consider the adequacy of the
25 disclosure statement as it is finalized by the debtor.
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1 Based on the preliminary report from the examiner, I
2 will determine whether we can proceed with the confirmation
3 hearing on November 11. I have reserved time at that time and
4 I am not convinced at this point that we can't go forward but I
5 think the person we need to hear from is the examiner.
6 The discovery motions sought by all of the litigation
7 parties I will continue to the September 7 hearing. I think
8 it's more appropriate at that time to determine whether the
9 confirmation discovery should commence immediately if we're
10 going to have a November 1st confirmation hearing or whether
11 the matter's going to be pushed off somewhat, in which case we
12 can discuss better scheduling of confirmation discovery. It
13 may be obviated by what is produced to the examiner and what
14 the examiner reports so I don't know -- want to consider that
15 today.
16 With respect to the issue of the shareholders'
17 meeting, I will continue that to September 7th as well. I
18 think that I need more information as to whether or not that
19 should proceed on a dual track or a triple track with the
20 examiner and the confirmation process. If I am convinced by
21 the examiner's report that the process should continue to
22 confirmation without a shareholder meeting, I'll consider that
23 strongly in my decision on the equity committee request for
24 that.
25 Do the parties think they can present me with a form
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1 of order articulating that?
2 MR. KIRPALANI: Thank you, Your Honor. Susheel
3 Kirpalani, of course we can. We'd be happy to.
4 So should I take it from Your Honor's comments that
5 the scope that was negotiated between the creditors' committee,
6 the equity committee and I guess the u.S. Trustee that was just
7 handed to you is the scope that we should include?
8 THE COURT: That's certainly the scope for the
9 preliminary investigation. If it needs to be adjusted after
10 the examiner has gotten in there, I'll consider that. But
11 we'll talk about that on the 7th.
12 MR. KIRPALANI: Thank you.
13 MR. ROSEN: Your Honor, Brian Rosen. Just one comment
14 on the shareholder meeting, and I know that Mr. Nelson made
15 some statements about it.
16 We will be filing, later today, a motion to compel
17 discovery in connection with that. We're okay continuing it to
18 9/7, we just think that the discovery that was alluded to will
19 have to be undertaken during the interim. We don't want to
20 lose that timeframe so we'll be filing that and have that
21 heard, Your Honor, probably the motion to compel if it's not
22 resolved; I believe August 10th is the next omnibus.
23 THE COURT: Well, why don't I consider that at the
24 September -- oh, I see, August 10th? Okay.
25
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1 MR. STOLL: Your Honor, James Stoll from Brown Rudnick
2 on behalf of the trust-preferred securities. My partner, Mr.
3 Levine, when he stood up mentioned our adversary proceeding
4 which has been filed and has been served on the parties. There
5 was no mention of that in this process but we had proposed with
6 the debtor, and believe that the debtor has agreed at least in
7 part, to the dual-tracking of that as well because many of our
8 claims, most of our claims, go to the title.
9 What I'd like to do is have a scheduling conference,
10 maybe August 10th is the date for that, Your Honor, so that we
11 can layout the discovery process for that. Any motions that
12 may be filed can be laid out in terms of timing so that if in
13 fact we end up with a November 1st confirmation hearing we're
14 not ultimately battling motions to dismiss and not having
15 discovery all the way during that process.
16 THE COURT: No problem with that. In fact, the
17 parties should meet and confer before the August 10th hearing.
18 So we can get that started if that's where we're doing.
19 MR. ROSEN: Your Honor, Mr. Stoll is correct. I have
20 had conversations with Mr. Stoll, Mr. Levine and Mr. Wissner-
21 Gross and other parties and will continue that.
22 THE COURT: Okay.
23 MR. ROSEN: And then we'll try and get together before
24 August 10th
25 THE COURT: All right. Let's take a ten minute break
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1 and you decide what remains on the calendar to be decided
2 today.
3 MR. ROSEN: Thank you, Your Honor.
4 (Recess from 11:35 a.m. until 12:02 p.m.)
5 MR. ROSEN: Your Honor, you had asked what items were
6 left on the calendar. Items 34 through 38 were objections to
7 claims that the debtor had filed. And as we reflected in the
8 agenda, we have adjourned those for which we received a
9 response and we submitted a CNO for those that we did not, for
10 all of 34 through 38. And I have orders here, if the Court
11 would like them.
12 THE COURT: I saw them this morning and I did enter
13 the orders.
14 MR. ROSEN: Thank you very much.
15 THE COURT: Under certificates of counsel.
16 MR. ROSEN: The other item 'that still remains then for
17 today, Your Honor, is item number 44 which was the debtors'
18 motion to consolidate several proceedings in connection with
19 the litigation tracking warrant litigation, specifically the
20 adversary proceeding with objections 43 and 44. We have
21 received responses from some people by Broadbill and Nantahala
22 folks and I think what we've agreed to for today, Your Honor,
23 is to pass this until August 10th and during the interim
24 period, Your Honor, we will continue with our meet and confers
25 and the debtors will try to produce all of the documents that
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1 are readily accessible to us.
2 As we've noted in the prior meet and confer, some of
3 the requests would require us to pull documents from over a
4 hundred locations around the United States. But to the extent
5 that we have some that are easily accessible through whatever
6 storage facility we have, we're going to provide those to the
7 Broadbill folks who served the discovery.
8 We'll also, Your Honor, during the intervening period
9 that you had laid out for us before the September 7th adjourned
10 disclosure statement hearing, going to make a modification in
11 there that I think will address some of the concerns that Mr.
12 Steinberg and Mr. Silverstein have raised.
13 And lastly, Your Honor, because of the different
14 proceedings that are out there, meaning again the adversary
15 proceeding, the two omnibus objections, the possibility that
16 Mr. Silverstein will file an amended complaint, plus we now
17 have another group that has filed a motion to intervene in that
18 litigation, we're going to try and confer during that period of
19 time to construct an overall process that works for all the
20 parties and we'll report back to the Court on August lOth.
21 THE COURT: It will resolve all of the issues of that
22 group?
23 MR. ROSEN: Everything except the merits, Your Honor.
24 THE COURT: Okay.
25 MR. SILVERSTEIN: Your Honor it's Paul Silverstein,
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1 Andrews Kurth for Broadbill.
2 I would hope that we would resolve all of the issues
3 but for the merits. To date, and again we've agreed to pass
4 this to August lOth subject to comments that I have and then
5 Mr. Steinberg has. We've been basically stonewalled, from my
6 perspective, on discovery. Hopefully that will be rectified
7 before August lOth.
8 The consolidation motion that the debtor filed we
9 responded to that as did my colleague from Nantahala, I can't
10 do the Indian names, I apologize. They're fairly robust
11 submissions and frankly, Your Honor, in some respects could
12 rule on that on the papers themselves.
13 The issue that's raised in the consolidation motion
14 and that's raised, in some respects, in connection with the
15 disclosure relates to whether or not the LTW holders needed to
16 file proofs of claim because they were never given notice,
17 number one, a class proof of claim was filed, number two.
18 Number three, they have not ever rejected the warrant agreement
19 and so forth. We've laid that out, I think, fairly
20 comprehensively in our papers. So at some point I think we
21 have to hit these things. I understand that Mr.
22 THE COURT: Well, are we somehow going to come up with
23 a procedural mechanism to resolve all of the entities broadly
24 in the group by either the adversary or the objections to
25 claims?
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1 MR. SILVERSTEIN: That's our hope. That's our desire.
2 The track record hasn't been that great but hopefully we all
3 get better at solving those problems but we haven't to date,
4 Your Honor.
5 THE COURT: Well, I think the debtor wants all of
6 those issues resolved at once.
7 MR. SILVERSTEIN: The debtor has said that it wants
8 all those issues resolved at once and I'm saying I want all
9 those issues resolved at once too and I'd like the merits
10 resolved as well because, again, one of the disappointments for
11 me today was not seeing the 300-odd million dollars on those
12 various demonstratives that are that's owed to the LTWs. So
13 yes, I hope we reach the merits on that and hopefully we can
14 make some progress. I'm skeptical but we'll be back on August
15 10th and hopefully you'll give us some time then. I know you
16 have other fish to fry, so to speak.
17 Thank you.
18 THE COURT: This is not my only case.
19 MR. SILVERSTEIN: I am well aware that this is not
20 your only case but we probably do need ten, fifteen minutes of
21 your focus time on this issue so we can at least move the ball
22 on it because we haven't really moved the ball to my
23 satisfaction.
24 THE COURT: Well, we have the afternoon on the 10th
25 reserved.
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1 MR. SILVERSTEIN: Thank you, Your Honor.
2 MR. STEINBERG: Your Honor, I am going to agree with
3 just about everything Mr. Rosen said. I just want to be able
4 to amplify a couple of three-point remarks.
5 One, that we are -- that Mr. Rosen has committed to
6 try to produce the low hanging fruit on documents and to meet
7 and confer on the more difficult requests that had been made by
8 Broadbill. The motion that they filed to consolidate asks for
9 a stay of discovery in the Broadbill litigation and I'm
10 assuming by his comment that notwithstanding the request for a
11 stay that in an effort to cooperate between now and August lOth
12 we will try to make progress on that.
13 I also will agree with Mr. Rosen, we have agreed to
14 some language in the disclosure statement which partially
15 resolves my concerns about the disclosure statement but
16 significantly what is being resolved is the portion in the
17 disclosure statement which we have argued about before Your
18 Honor a couple of times, that if Broadbill or the litigants in
19 the Broadbill litigation are successful, that their
20 distribution will have been reserved for in accordance with the
21 mechanism under the plan.
22 The debtor had, up until recently, resisted making the
23 same change for those claimants who are not in the Broadbill
24 litigation but had filed proofs of claim and had been
25 vindicated through the claims objection process. The amendment
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1 to the disclosure statement that Mr. Rosen is referring to will
2 treat anybody who's an intervener or an actual litigant in the
3 Broadbill litigation the same as anybody who's a claimant
4 holder for purposes of reserving for a distribution under the
5 plan.
6 I think once that change is made, then the group who
7 had moved for pro se intervention in the Broadbill litigation
8 will be happy to sit aside because they will recognize that
9 they are being treated the same whether they're in the
10 Broadbill litigation or not. So one of the advantages of
11 waiting till August 10th is to allow the debtor to do that and
12 perhaps mollify a group of irate LTW holders.
13 The third thing, and just to crystallize it but not to
14 argue what might happen on August 7th. The essential
15 difference between what Mr. Silverstein and I are trying to do
16 in connection with the LTW procedure is to have a procedure
17 that will bind and be for the benefit of all of the LTW
18 holders. By merely proceeding it in the focus of a claims
19 objection, you are only going to deal with the people who filed
20 claims and secondarily the people who have decided that it's
21 worth the investment of time to litigate those claims and we're
22 trying to treat the LTW group in the same way that a bondholder
23 with an indentured trustee would be treated and either the
24 bonds are successful and valid claims are not. Hopefully we
25 will agree to a procedure. Mr. Silverstein was alluding to, I
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1 think -- actually, it was Mr. Rosen, the amended complaint that
2 Mr. Silverstein has drafted is a class complaint to try to deal
3 with a comment that Your Honor had made before. But ultimately
4 the process that we're trying to get to is to have Your Honor
5 resolve, on the merits, the validity of the litigation tracking
6 warrant claim as it applies to all litigation tracking warrant
7 holders.
8 Thank you.
9 THE COURT: I understand.
10 MR. SILVERSTEIN: And Your Honor, if I may, just to
11 supplement for a moment if I may, two seconds. The issues,
12 again, with respect to the class action complaint on the class
13 certification, that's a lot of work that doesn't have to be
14 done if Your Honor will basically allow the complaint to apply
15 to everyone because once it's determined that --
16 THE COURT: Don't we need a procedural mechanism to do
17 that?
18 MR. SILVERSTEIN: We need a procedural mechanism
19 which, again, we've drafted already.
20 THE COURT: All right.
21 MR. SILVERSTEIN: One of the procedural mechanisms is
22 that technically I need leave to file an amended complaint,
23 which I would ask Your Honor to grant without papers but I can
24 submit papers if I have to. Mr. Rosen has, sort of, hedged on
25 whether he would consent to that or not and I suppose we'll
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1 define that a little bit better between now and the next
2 hearing date in August.
3 THE COURT: Okay.
4 MR. SILVERSTEIN: And just to focus a bit more on one
5 of the issues that Mr. Steinberg raised, with respect to Mr.
6 Rosen's objections to claims, there's a whole class of people
7 who either haven't filed claims.
8 THE COURT: Right.
9 MR. SILVERSTEIN: And there's a whole class of people
10 whose claims are late.
11 THE COURT: I think we were at the same point a month
12 ago or our last hearing.
13 MR. SILVERSTEIN: And we've still made no progress on
14 that point, which is my frustration.
15 THE COURT: Then file a motion if you can't stipulate
16 to it.
17 MR. SILVERSTEIN: Thank you.
18 THE COURT: All right.
19 MR. ROSEN: Your Honor, I apologize. Two things, one
20 on the discovery in connection with that prior matter, we had a
21 meet and confer. We're trying to satisfy everybody's need. No
22 one is stonewalling anyone on this one, Your Honor.
23 I did neglect to say there was one other item, though,
24 that I think the Court had scheduled for today; it's item
25 number 27, Your Honor, which was the motion of Silas and
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1 Barbara Wrigley. They wanted a status conference to be held
2 today. Your Honor, there's currently pending our objection,
3 the debtors' objection to their claims that was filed in
4 January of this year. And then subsequently the Wrigleys filed
5 a motion for relief from stay in order to not have that matter
6 heard in this court, meaning the claim objections but rather
7 get it back to state court.
8 Nothing is on today. The Court made it very clear
9 this is purely a status conference not a hearing on the merits
10 on either our objection or their motion for relief from stay.
11 MR. LOIZIDES: Good afternoon, I guess, Your Honor.
12 For the record, Chris Loizides for Silas and Barbara Wrigley.
13 First, I'd like to thank the Court for scheduling a
14 status conference in this matter. Your Honor, I'll just try to
15 go through the history quickly.
16 THE COURT: I don't need it. I've seen the papers so
17 just tell me what we want to do.
18 MR. LOIZIDES: What I want to do, Your Honor -- what
19 we've asked the Court to do is essentially to schedule the stay
20 relief motion before the hearing on the claim objection. The
21 reason is fairly obvious and that is if the stay re~ief motion
22 is granted it essentially will moot the claim objection, at
23 least as far as this Court is concerned. If the stay relief
24 motion is denied there's no prejudice to anybody.
25 What I'm trying to avoid is to be in a situation where
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1 I basically have to take discovery and prepare for an
2 evidentiary hearing on a claim objection that mayor may not be
3 heard in this Court. And I think that the issues in the stay
4 relief and in the underlying claim objection are pretty much
5 entirely separate. You know the stay relief is going to be,
6 maybe, what my clients' health and financial circumstances are,
7 the status of the state court litigation, the pleadings in the
8 state court litigation on the debtors' side.
9 THE COURT: I understand.
10 MR. LOIZIDES: Floodgate arguments that there are a
11 lot of other claims. The only overlap might be reasonable
12 probability of success on the merits but even there the Court,
13 I don't believe, would have an -- we're not going to have an
14 evidentiary hearing on that to determine how likely we are to
15 succeed. I think the Court makes a broader equitable look at
16 the whole circumstance.
17 THE COURT: Okay. I understand.
18 MR. LOIZIDES: So that's basically our position, Your
19 Honor.
20 THE COURT: And the debtors' position?
21 MR. ROSEN: Your Honor, as I indicated, we filed this
22 claim objection in January. We adjourned it because the
23 Wrigleys were not prepared to go forward and we've adjourned it
24 from time to time. Subsequently, they filed the motion for
25 relief from stay.
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1 If the Court will recall, we went forward with the
2 balance of the claims that were subject to that omnibus
3 objection. We made a presentation on the wrong debtor
4 litigation. We've done it actually twice before this Court,
5 Your Honor, and for us to do it again is something that we
6 believe is easy. We're prepared to do it on August 10th and
7 it's not anything that will require any significant discovery
8 on the part of the Wrigleys.
9 Just to say we don't want to have it here, we want to
10 go back and we want the debtors now to go through the process
11 and incur the expense of litigating it there, I think is
12 inappropriate. Your Honor, we suggest that there should not
13 be, just based upon the Wrigley's passage -- getting us to
14 adjourn it that they now have the opportunity to send it back
15 to Court. We want to come back here on August 10th. We want
16 to have the hearing. I don't think one should proceed the
17 other; they're both scheduled for that day.
18 THE COURT: Well, I agree with counsel for the
19 Wrigleys. Let's decide the relief from stay. It may moot out
20 the objection to claim, it may not.
21 MR. LOIZIDES: Okay. Well, I appreciate that Your
22 Honor.
23 I want to mention one last thing and that is the
24 Wrigleys are both in poor health. What I -- I don't know that
25 we need to deal with this today, I don't know if it's before
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1 the Court, but just to make the record clear; what I've
2 suggested is that if there are allegations purely for the
3 purpose of the stay relief motion that are contested, that I
4 make the Wrigleys or one of them available for a deposition and
5 that we would meet that at trial as a trial deposition rather
6 than trying to figure out how to fly them out here. I believe
7 that while that is not a usual request, given their health and
8 everything and given the fact that the authority says that that
9 can apply even to a non -- a party rather than a witness,
10 that's a suggestion that I would make to deal with that.
11 Again, I don't know that we need to deal with that
12 right now but I just wanted to put that on the record.
13 Thank you, Your Honor.
14 THE COURT: Okay.
15 MR. ROSEN: Your Honor, we have no problem. We will
16 try to work with counsel to, if necessary; take the deposition
17 of his clients.
18 THE COURT: Okay. Anything else set off for today?
19 MR. TAYLOR: Good afternoon, Your Honor. Greg Taylor
20 from Ashby & Geddes on behalf of the equity committee.
21 Just one or two clean up items, Your Honor. I think
22 agenda item 26 is a seal motion by the equity committee but I
23 don't believe we've seen an order one. It's one that was filed
24 several weeks ago.
25
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1 MR. TAYLOR: And there's also a related motion to
2 shorten notice on that. I have copies of those orders with me.
3 THE COURT: I'll enter that unless anybody opposes it?
4 (No response)
5 THE COURT: All right. I'll enter that order.
6 MR. TAYLOR: The second item, Your Honor, is what we
7 filed last night. It was similarly a seal motion and a motion
8 to shorten notice, given that it was filed just yesterday I'm
9 happy to carry that to the next hearing or if there's no
10 objection we can deal with that today.
11 THE COURT: I think the debtors don't object to that.
12 MR. ROSEN: Your Honor, that can be filed under seal.
13 THE COURT: All right. I'll grant both motions to
14 seal.
15 MR. TAYLOR: If I may approach, Your Honor.
16 (Pause)
17 THE COURT: Thank you. All right. I'll enter those
18 orders.
19 MR. MCMAHON: Your Honor, good afternoon, Joseph
20 McMahon. I rise to come back to the mechanics of the examiner
21 order, if I may for a moment. Given the timeframe that the
22 Court has mapped out, obviously time is of the essence for our
23 office, given that these processes typically take seven to ten
24 days to work themselves out.
25 First, the parties in interest who have participated
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1 In the motions for appointment of an examiner, I'm going to ask
2 that they get us their proposed nominees for an examiner by the
3 close of business tomorrow so that our office can move
4 expeditiously with respect to evaluation of the selected or
5 evaluation of the names that have been proposed by the parties.
6 With respect to the mechanics of entering the order,
7 Your Honor, I fully understand the Court's ruling and it should
8 not be difficult to memorialize. That being said, if you take
9 the balance of the orders that were proposed, ours and -- well
10 the equity committee's which we generally agree with, as fact.
11 It' modeled on an order that was entered in a case called DBSI
12 pending before Judge Walsh. The creditors' committee, I
13 believe the FDIC proposed an order. I'm a bit concerned that
14 we're going to see an e-mail this afternoon and then there's
15 going to be this objection, that objection. I'd just like some
16 guidance from the Court as to how the Court wants to deal with
17 issues relating to the order. There are provisions, standard
18 provisions, like cooperation with governmental investigations
19 outside of the scope of this Court. Retention of professionals
20 by the examiner, that type of thing, that I don't think should
21 be too controversial but we just need a way to get from point A
22 to point B quickly so that we can move forward.
23 THE COURT: All right. Can the parties submit a
24 revised form of order under certification of counsel by the end
25 of tomorrow?
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1 MR. KIRPALANI: I believe so, Your Honor. The form of
2 order that the creditors' committee had handed to the Court was
3 a form that, I think, has everything that Mr. McMahon said.
4 And since six different parties have signed off on that
5 already, it seems like we'd like to go to Richard Clayton right
6 now and Mr. McMahon is welcome, the equity committee's welcome,
7 hopefully we can just compare whatever order the like and try
8 and make it all work and get it done by tomorrow.
9 MR. MCMAHON: Your Honor, the point I want to make
10 clear is, for example, the committee's proposed form of order
11 has a provision having us address the appointment within two
12 days, that that's not going to happen.
13 The paragraph 6 some of the proposed forms of order
14 that I've seen get involved in issues of privilege. I mean,
15 those are issues that I think we can wait -- that can wait
16 until the August date, until the examiner gets up and running.
17 MR. KIRPALANI: Paragraph 6 is verbatim in the two,
18 Your Honor. We don't have to waste the Court's time. They're
19 verbatim.
20 THE COURT: All right. Why don't you work with them
21 and get me the order. If you can't, I'm available this
22 afternoon for a conference call. When will the U.s. Trustee
23 think he's in a position -- she's in a position to appoint an
24 examiner in this case, assuming you get names by the end of
25 tomorrow?
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1 MR. MCMAHON: Your Honor, we're going to do all that
2 we can to get the process moving and hopefully be in a position
3 to get the Court something by the end of next week.
4 THE COURT: Okay. Can it be earlier, by the end of
5 this week?
6 MR. MCMAHON: Your Honor, there are certain variables
7 that inevitably come up in this process, i.e. conflicts vetting
8 and the like that present -- there's points that if I were to
9 make a promise today to the Court I wouldn't want to be held to
10 it.
11 So, like I said, I think the best we can do, Your
12 Honor, is that we understand the Court's ruling with respect to
13 timeframe and we're going to do whatever we can to
14 expeditiously get the person on board.
15 Alternatively, Your Honor, with respect to timeframe,
16 I don't know if the Court if there is an omnibus date later
17 in August, two weeks out, that would provide a basis for at
18 that time a status conference post examiner employment. That
19 will give the examiner a bit more time to wade through the
20 documents that are available and prepare what I think will be a
21 more meaningful work plan rather than having what would, in
22 essence be, like a week or more to complete the task.
23 THE COURT: I think pushing it out until the end of
24 August is going to be difficult.
25 MR. JOHNSON: Your Honor, again Robert Johnson from
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1 Akin Gump on behalf of the Official Committee of Unsecured
2 Creditors.
3 We have to keep in mind that this examiner motion was
4 first made in April. There has been plenty of time for people
5 to look at potential candidates and plenty of time for people
6 to look at issues and potential conflicts. We're going to have
7 names available for the trustee's office by tomorrow. And I
8 respectfully submit that they should be able to get the process
9 going faster than that. If they can get somebody selected by
10 next Monday, the 26th, then at least they would have ten
11 business days before having to make the report on August 6th.
12 THE COURT: Well let me ask this, can the parties who
13 are going to submit names have the names they submit clear
14 conflicts before the submit the names?
15 MR. JOHNSON: I can tell you on behalf of the
16 creditors' committee, we aren't going to put anyone on the list
17 that we think has a conflict and we've been very carefully
18 checking, as best we can already, and I believe that the others
19 are similarly situated.
20 MR. JOHNSON: Your Honor, in advance of this
21 proceeding I think we even spoke with most of the other
22 parties, we started that process the biggest conflict,
23 obviously, would be just due to the number of relationships
24 that it has with JPMorgan and we tried to let them know of
25 potential candidates. I think that people should do the same
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1 thing and get things moving right away to the united States
2 Trustee. That is the biggest issue, Your Honor and we would
3 hope that now that we're at this point in time that we don't
4 create a self-fulfilling prophecy of delay. We would like the
5 U.S. Trustee to name this person as soon as possible.
6 MR. MCMAHON: Your Honor, just to put this in
7 perspective, Your Honor we did send out an e-mail with a
8 proposed form of examiner order about a week ago, asking for
9 names by this past Thursday. So we've been waiting for
10 nominations from the parties with the idea that potentially
11 something could happen, not to prejudice the party's rights in
12 connection with the issues before the Court. So we've been
13 trying to get the parties moving with respect to getting us
14 names. I understand the Court's view that this has to happen
15 sooner rather than later. The ask with respect to moving the
16 status conference two weeks would enable the examiner to get,
17 like I said, a broader picture of the documents that are
18 available.
19 THE COURT: All right. Well I'm gong to do this. I'm
20 going to direct the U.S. Trustee to get a person appointed by
21 Monday, the end of business on Monday the 26th.
22 I'm going to keep to my current timeframe of the
23 August 10 hearing and just for the record that's at 1:30 p.m.
24 But I'll hear whoever is appointed as the examiner regarding
25 timing as I suggested.
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MR. MCMAHON: Thank you, Your Honor.
THE COURT: Thank you.
IN UNISON: Thank you, Your Honor.
THE COURT: All right. We'll stand adjourned, then.
(Proceedings concluded at 12:26 PM)
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2 I N D E X
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4 E X H I B I T S
5 PARTY NO DESCRIPTION
6 Debtors 1 Debtors' slides
7 WMI Group 1 WMI noteholder group
8 demonstrative
9 Creditors' 1 Creditors' committee capital
10 Committee structure demonstrative
11
12 R U LIN G S
13 DESCRIPTION
14 Motion of the Official Committee of
15 Equity Security Holders in Support of
16 Order Directing Appointment of an Examiner
17 Under 11 U.S.C. Section 1104(c), granted.
18
19 Motion for Order Authorizing the Official
20 Committee of Equity Security Holders to
21 File Supplemental Filing regarding the
22 Examiner Motion and the Scope of
23 Production under Seal, granted.
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2 R U LIN G S (cont'd.)
3 DESCRIPTION
4 Motion for Order Authorizing the Official
5 Committee of Equity Security Holders to
6 File Supplemental Statement in Support of
7 Motion for Examiner and on Timing for
8 Resolution of Shareholder Meeting under
9 Seal, granted.
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2 C E R T I F I CAT ION
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4 I, Clara Rubin, certify that the foregoing transcript is a true
5 and accurate record of the proceedings.
6 Clara 7
Digitally signed by Clara Rubin
R b· DN: cn=Clara Rubin, c=US U I n Reason: I am the author of this document Date: 2010.07.21 15:20:21 -04'00'
8 Clara Rubin
9 AAERT Certified Electronic Transcriber (CET**D-491)
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11 Veri text
12 200 Old Country Road
13 Suite 580
14 Mineola, NY 11501
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16 Date: July 21, 2010
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